New Puerto Rico Oversight board member Justin Peterson exercised an exit veto on a proposed central government debt restructuring Friday.
More than two hours into a virtually held public board meeting, Justin Peterson left the meeting to remove the board’s quorum. He did this to deny the remaining three board members the right to take action on a proposed change to wording in the proposal that might have approved the debt restructuring without any further board action.
The board members had agreed on the language for a motion prior to the meeting. As read at the meeting by Executive Director Natalie Jaresko, the motion would have recommended negotiations with creditors “consistent with” the terms found in exhibits to the meeting “with a view to presenting an amended plan of adjustment as soon as possible.”
About 45 minutes later board member Ana Matosantos she wanted to "move a modified resolution” for the board to file the debt plan of adjustment according to that day’s exhibits. There could be additional board conversations of the topic. But only portions of the negotiated plan different from what was presented that day would require a board vote.
“I think ‘with the view’ is not as clear as I’d like it to be,” she said.
She asked staff attorney Jaime El Koury to propose changed language.
At that point, Peterson checked with El Koury that if he left the meeting there would be no quorum. El Koury affirmed it.
“What my colleague Ana is recommending is not what we agreed to,” Peterson said. “We are not authorizing the staff to proceed with a filing right away. So I’m leaving the meeting now and breaking quorum. Goodbye.”
Peterson immediately withdrew.
A second later Matosantos said, “But Justin, that’s not what it, alright.”
Board Chairman David Skeel acknowledged that the board, left with three members in the meeting, had no quorum and thus could take no further action.
Board member Andrew Biggs said he wished things hadn’t moved “quite so quickly.” He said he wished the board had retained the previous language so it could have kept a quorum and he hoped the board could reconvene to approve the deal.
Matosantos said it was unfortunate a member had withdrawn from the meeting. She said she hadn’t meant to suggest there’d be no conversations. She said she hoped the board could get back to dealing with the proposal.
Skeel said the board had already approved a number of measures earlier in the meeting and he was hopeful the board would convene again soon to address the board’s debt negotiating stance.
Earlier in the meeting Peterson said he planned to vote "no" on the proposal but expected the wording to pass 3-1.
The board’s staff and Jaresko explained at the meeting that in the post-COVID-19 world Puerto Rico’s economy would expand less and the Puerto Rico public’s need for government help was greater. Together, this meant that the board’s offer for debt holders had to be more limited compared to the deal that was reached in February.
At Friday’s meeting the board staff presented a different version of a debt plan from the one that had originally been offered in August and publicly diverged in September. Whereas the Aug. 18 proposal had totaled $10.98 billion for the roughly $35 billion of par of central government debt, the new proposal would be for a range from $10.96 billion to $11.96 billion.
These compare with the February board-approved plan of adjustment that had $15.2 billion for debt and the Aug. 24 creditor proposal that there be $15.3 billion.
A contingency value instrument would cover the range. If sales and use tax revenues came in higher than projected in the board’s May fiscal plan, than 40% of the revenue would go to bondholders up to $50 million per year for 20 years.
In the new proposal, bondholders would get $5.98 billion in cash and $4.98 billion in general obligation bonds maturing every year through fiscal year 2041. The proportions of cash and GO consideration are very similar to the Aug. 18 proposal.
Recoveries for the central government bonds would vary from 58.7% to 64% for the pre-2011 general obligation bonds (depending on the CVI) to between 49.2% and 54.5% for the 2014 GO to 0.4% for $16 billion of Employees Retirement System, Highways and Transportation Authority, and other central government debt.
After the board presented the new proposal for debt but before he left the meeting, Peterson said he thought the new proposal was inequitable, nonconsensual, and not developed in good faith or responsibly. He said he was concerned about growing the economic pie and not just carving it up.
Matosantos responded that everyone wanted Puerto Rico’s economy to grow. She said the debt agreement had to be affordable. She said that if the board pretended to expect greater resources than is likely, than it would just be returning to the old Puerto Rico ways. She said that the current board projection makes the board’s proposed debt deal beyond affordable.
