The Puerto Rico Oversight Board has turned its attention to restructuring an additional $9.2 billion of debt.
The board and its representatives have been talking with holders of Puerto Rico Public Buildings Authority, Puerto Rico Aqueduct and Sewer Authority, and University of Puerto Rico bonds, attorney Martin Bienenstock said at last week’s Title III bankruptcy Omnibus hearing.
The talks come after the Puerto Rico Sales Tax Financing Corp. (COFINA) agreed to a deal, and the Government Development Bank's plan won approval from the bankruptcy court.
The buildings authority is in default while PRASA and UPR have been paying their bond debt. As of February 2017 the buildings authority had $4.1 billion of bonds and loans outstanding, PRASA had $4.6 billion, and University of Puerto Rico had $500 million.
Bienenstock said that the debt of the University of Puerto Rico might go into the consensual restructuring process found in Title VI of the Puerto Rico Oversight Management and Economic Stability Act. Bienenstock is the board’s lead attorney in the bankruptcy and is a partner at Proskauer Rose LLP.
Attorney John Mudd in his Control Board Watch blog said that the debt of PRASA and UPR “may go into Title III next year due to two issues: union contracts and pensions. It is very doubtful that the Puerto Rico legislature would change these contracts or even would have the power to do so. Moreover … in Bayron Toro v. Serra, 119 D.P.R. 605 (1987), the Puerto Rico Supreme Court has stated that those pensioners who are receiving pension payments have a constitutional right to it.”
If the board insists on changing the union contracts or pensions it will have to use Title III rather than Title VI, Mudd said.
Bienenstock said that he expected the debt of the Puerto Rico Electric Power Authority would likely be the next to have a plan of adjustment filed in a PROMESA Title III bankruptcy process. He said that the authority, to which the central government has loaned money, doesn't need more of these loans.
On July 30 the Oversight Board, PREPA, and bondholders reached a preliminary deal for the power authority's debt in the form of a Restructuring Support Agreement and a term sheet. There are continuing negotiations with bondholders and bond insurers to formalize the deal.
The board filed a plan of adjustment for the COFINA on Oct. 19. It is still working through the Title III process. Bienenstock said he hoped Judge Laura Taylor Swain would confirm the COFINA plan in January.
In a tweet concerning Bienenstock’s presentation, Puerto Rico debt commentator Cate Long noted that the lawyer hadn’t mention any anything about Puerto Rico’s general obligation or Highways and Transportation Authority bonds.
As of February 2017, the commonwealth had $13.3 billion, while the HTA had $4.1 billion. Both are in Title III bankruptcy proceedings.
