UPDATE 2-U.S. Supreme Court upholds Puerto Rico financial oversight board appointments

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FILE PHOTO: A general view of the U.S. Supreme Court building in Washington, U.S. May 8, 2020. REUTERS/Jonathan Ernst/File Photo

WASHINGTON (Reuters) – The U.S. Supreme Court on Monday upheld appointments to Puerto Rico’s federally created financial oversight board that had been challenged by creditors in a ruling that avoids disruption to the panel’s restructuring of about $120 billion of the bankrupt U.S. territory’s debt.

The justices, in a 9-0 decision authored by Justice Stephen Breyer, concluded that the 2016 appointment of seven board members did not violate the U.S. Constitution’s so-called appointments clause as the challengers had argued.

The outcome hinged on the court’s conclusion that the board has control primarily over local issues, meaning the appointments were valid under the Constitution’s language regarding naming officials to certain government posts.

The board appealed after the Boston-based 1st U.S. Circuit Court of Appeals ruled in 2019 that the appointments were unlawful because the members had not been confirmed by the U.S. Senate.

The legal challenge was brought in 2017 by Puerto Rico creditors including Aurelius Investment, LLC, a hedge fund that holds Puerto Rico bonds, and Unión de Trabajadores de la Industria Eléctrica y Riego, Inc, a labor group that represents workers at Puerto Rico’s government-owned electricity utility.

Bondholders face losses as a result of debt restructuring while the labor group has said the board’s proposed restructuring of the utility’s debt would lead to its members having worse working conditions.

Congress created the board in 2016 to address the U.S. Caribbean island territory’s fiscal crisis.

The board argued that a ruling invalidating the appointments would raise questions about the lawfulness of Congress allowing people to vote for elected officials in territories such as Puerto Rico as well as in the District of Columbia.

While the 1st Circuit declined to void actions taken by the board, the decision created uncertainty as the panel continued its efforts to restructure Puerto Rico’s debt and pension obligations.

Reporting by Lawrence Hurley; Editing by Will Dunham

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