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Judge signals litigation over Puerto Rico bonds can proceed

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SAN JUAN — Litigation over billions of dollars of defaulted bonds issued by Puerto Rico would resume in 2020 after a judge hearing the U.S. commonwealth’s bankruptcy case gave initial approval on Wednesday to a scheduling plan proposed by a court-appointed mediation team.

Allowing the litigation to proceed under strict timetables would let the court tackle several key disputed issues that have kept the island’s bankruptcy, filed in May 2017, moving at a snail’s pace.

U.S. District Court Judge Laura Taylor Swain gave her initial nod to the mediators’ plan subject to some changes in language, while noting that many of the scheduling issues raised by various parties would be addressed in a January court hearing.

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The mediation team, which will submit an amended report by mid-January, recommended in late November that litigation should proceed over certain bonds and disputes. Those included the rights of owners of revenue bonds against the U.S. commonwealth, as well as the validity of general obligation and Public Buildings Authority bonds and whether bondholders’ claims were secured or unsecured.

“We had significant disagreement on the outset,” said U.S. Bankruptcy Court Judge Barbara Houser, who leads the mediation team, but now “most people find the (proposed) schedules good enough.”

In its November interim report to the court, the team said bond-related issues “have the potential to drive overall restructuring outcomes.”

Puerto Rico’s federally created financial oversight board, which agreed with many of the team’s recommendations, filed a so-called plan of adjustment with the court in September to restructure $35 billion of the island’s bonds and more than $50 billion of pension liabilities.

That plan could be amended if ongoing negotiations resulted in agreements with more creditors, according to the interim report.

(Reporting By Luis Valentin Ortiz in San Juan, additional reporting by Karen Pierog in Chicago; Editing by Stephen Coates)

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