President Donald Trump’s announcement
that he intends to appoint Justin Peterson to the PROMESA oversight board should be “relatively imminent” because the appointment will replace a member of the oversight board appointed by former President Barack Obama and avoid the need to undergo U.S. Senate confirmation for his selection, according to two sources familiar with the matter.
Continue reading for the Americas Core Credit by Reorg team's update on Puerto Rico, and request a trial to access our coverage of thousands of other distressed situations.
In a brief statement emailed to Reorg, Peterson said: “I’m honored to be appointed, and I am eager to get to work helping President Trump bring more transparency and efficiency to the Board.”
The selection of Peterson, DCI Group’s managing director and a former advisor to general obligation bondholders in Puerto Rico, caught several parties in Puerto Rico’s restructuring process by surprise. The move is being championed by some creditors, who said they expect Peterson to push for “greater transparency and accountability” on behalf of the board. Two sources close to the commonwealth government, meanwhile, said that Peterson’s work on behalf of creditor groups will spark criticism by some local political leaders and interest groups. Three of the sources concurred that Peterson’s appointment would change the “chemistry” of the oversight board and could lead to conflicts between members and a potential change in direction of the oversight board, but a fourth source expressed the expectation that Peterson and the remaining board members would work cooperatively.
Peterson served as an advisor to GO bondholders in Puerto Rico before, during and after the passage of PROMESA. During his tenure, the firm also advised Doral Bank, a Puerto Rico-based lender that was involved in a public battle and legal dispute with the commonwealth government over a tax dispute. Peterson advised creditor committees in disputes involving General Motors and the Republic of Argentina, according to a company biography
. He is credited with spearheading the development of DCI’s financial services practice into an investor and creditor representation specialist, in addition to heading the firm’s energy practice. Peterson also has broad experience working in Republican politics and worked on the presidential campaigns of Elizabeth Dole and President George W. Bush, according to the biography.
The PROMESA statute’s appointment process for the seven oversight board members, which was recently upheld
as constitutional by the U.S. Supreme Court, calls for the president to make appointments from lists of candidates provided by the U.S. House and U.S. Senate majority and minority leaders. The Senate majority leader and the House speaker each recommend two members, with a requirement that one of the members selected by the House speaker has a primary business or primary residence in Puerto Rico. The president also selects one member of his own choosing. Additionally, the president may appoint other members who are not on a list of recommended names provided by a congressional leader, but such nomination would have to go through the U.S. Senate confirmation process.
While the oversight board currently has three vacancies, Trump’s selection of Peterson would have to replace the member previously selected by Obama, according to PROMESA. The two sources familiar with the matter said Trump’s selection of Peterson would replace former Judge Arthur González, one of the four remaining members on the oversight board who has not announced an intent to step down from his role, but other sources said Peterson would replace José Ramón González, who resigned effective Aug. 31. Because the remaining oversight board members have already served beyond their three-year terms, they can be replaced at any time.
Trump’s selection would replace the member selected by the former president, but there are conflicting reports whether that member is Judge González or José Ramón González, and the press release
issued by the Obama administration announcing the appointments does not specify which political leader recommended each member. The oversight did not respond to requests for comment on which oversight board member was selected by Obama. Two sources indicated that the remaining oversight board members, including Judge González, could be reappointed by other political leaders and indicated that efforts are underway to try to forge a consensus on the remaining members.
Oversight board members are subject to federal conflict of interest and financial disclosure requirements, according to the PROMESA statute.
The PROMESA oversight board and commonwealth officials have not yet publicly reacted to the White House announcement. U.S. Rep. Nydia M. Velázquez, D-N.Y., said in a press release
this afternoon that in appointing Peterson, the Trump administration “has made clear it favors pursuing interests of bondholders over the wellbeing of the Puerto Rican people.” Velázquez added that as a member of the oversight board, “Peterson would have a critical say in how to restructure the Island’s debt, but his coziness with bondholders is a serious red flag and a clear conflict of interest.”
The White House announcement comes in the wake of a filing
by commonwealth PSA creditors urging the Title III court to impose case deadlines for the PROMESA oversight board to put forth and prosecute a plan of adjustment.