June 1, 2020 / 4:11 PM / a month ago

UPDATE 3-U.S. Supreme Court upholds Puerto Rico financial oversight board appointments

(Adds board comment and details of new legal challenge, paragraphs 8-9)

By Lawrence Hurley

WASHINGTON, June 1 (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 Caribbean island territory's fiscal crisis.

The board, which has paused the restructuring of debt during the coronavirus pandemic, welcomed the ruling, saying in a statement it is "steadily working towards instituting long-term fiscal planning and balanced budgeting."

The board already faces another legal battle. Last week, bond insurer Ambac Financial Group Inc filed a lawsuit claiming that provisions in the 2016 law that allowed for the island's 2017 bankruptcy filing are unconstitutional.

Reporting by Lawrence Hurley; Additional reporting by Karen Pierog; Editing by Will Dunham

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