Court denies stay on Puerto Rico Plan of Adjustment

The U.S. Court of Appeals for the First Circuit denied a request to stay the Puerto Rico central government Plan of Adjustment from going into effect Tuesday.

The court issued the denial order Friday morning without explanation.

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Puerto Rican teachers’ groups had sought the stay as part of their appeal of the plan’s treatment of their pensions. The court is still scheduled to consider their appeal in the next week or two.

The Puerto Rico Oversight Board told the court multiple times this week that even with the rollout of the plan and assuming the Appeals Court subsequently agrees with the teachers about their pension benefits not being changed, the board could find the money to cover obligations and necessary expenditures. It told the court its position eliminated the need for a stay.

An attorney for the teachers’ associations did not immediately respond to a request for a comment.

Along with the teachers’ associations, the board, Puerto Rico credit unions, and a dairy producer have filed appeals against parts of the Plan of Adjustment. However, even if they were to succeed, they would not directly affect the plan’s treatment of bonds.

Assuming, as now seems likely, the Plan of Adjustment goes into effect Tuesday, it would affect $18.8 billion of general obligation and Public Building Authority bonds. Holders of these bonds would receive $7.4 billion of new bonds, $7 billion in cash and fees, and up to $3.5 billion in payments in the form of contingent value instruments (CVI).

The plan would also affect $3.2 billion of Employee Retirement System bonds. ERS bond holders would receive about $450 million in cash payments (inclusive of restriction fees) as well as interest in a trust that would hold the ERS private equity investments. The commonwealth of Puerto Rico would have the option to purchase this set of private equity investments in April 2023 for $70.75 million.

Finally, the plan would affect $6.2 billion of Highways and Transportation Authority bonds, $1.9 billion of Puerto Rico Infrastructure Finance Authority bonds, $384 million of Convention Center District Authority, and $30 million of Metropolitan Bus Authority bonds. Together, holders of these would be allotted up to $5.2 billion in the form of CVIs and about $700 million in cash (inclusive of restriction/restructuring fees) related to their clawback claims.

In the case of holders of HTA bonds, the distribution of cash and CVIs is subject to “distribution conditions” that will not be met on Tuesday. The approved central government Plan of Adjustment sets up what they would get at some point in the future if conditions are met.

The HTA conditions cannot be met until the board completes an HTA Plan of Adjustment and a court confirms the plan. The board hopes to do this before the end of the year.