The First Circuit Court of Appeals has reversed a district court ruling from the lower court over whether bondholders of nearly $3 billion of debt issued by Puerto Rico’s Employees Retirement System (ERS) have a claim on the pension fund’s assets. The pension fund is designated for the island’s public employees.
In 2008, the ERS issued roughly $3 billion in bonds that were sold as having a first lien on all assets of the ERS system, including future governmental deposit. These types of bonds are issued by many pension funds to cover pension shortfalls and are commonly known as Pension Obligation Bonds, or POBs.
The original pension fund lawsuit was brought after the island’s government passed legislation that would allow the government to pay retirees the pension obligation they were owed from Puerto Rico’s general fund, rather than through payments to the ERS. The territory’s pension system, confronted with an almost 100% funding shortfall, had liquidated all cash assets.