Puerto Rico Board OKs plan confirmation without mediation

The Puerto Rico Oversight Board said it will move forward with the confirmation process for the Plan of Adjustment without further mediation after confirming a just-passed Puerto Rico law will allow for the issuance of new bonds, a key to getting the island out of bankruptcy.

The move paves the way for Puerto Rico to exit bankruptcy. The entire process less than a week ago was near collapse with various parties threatening to withdraw support for the plan. After a four-and-a-half-year slog that was interrupted by natural disasters, COVID-19 and the recent fight over pensions and how to fit them into a final resolution of the island's debt, it looks as though confirmation of the Plan of Adjustment is likely by Nov. 8.

Bloomberg News

The legislation Gov. Pedro Pierluisi signed late Tuesday is sufficient to allow issuance of new bonds, the board said, which was integral to getting the island out of its $33 billion bankruptcy.

The Oversight Board said it concluded the changes the Legislature made to the amended legislation following the Monday bankruptcy hearing "forms the basis for the issuance of new general obligation bonds that is part of the 7th Amended Plan of Adjustment."

"Therefore, the Oversight Board is willing to move forward with the confirmation process without further mediation and with appropriate adjustments to the proposed confirmation order," the Board said in a release.

The legislation was contingent on a promise no cuts would be made to pensions and additional funding would be provided to the University of Puerto Rico and municipal governments, which the board had already agreed to back in mid-October.

The board has been seeking a law that would issue new bonds and Contingent Value Instruments connected with the adjustment plan to exit the bankruptcy process.

The Oversight Board thanked Judge Laura Taylor Swain for ordering the hearing that resulted in adjustments to the legislation "that made Act 53 acceptable to the Oversight Board, and for the opportunity of mediation under the guidance of the team led by Judge Barbara J. Houser."

“I am relieved and pleased that we are back on track and can move forward with the Plan of Adjustment to end Puerto Rico’s painful bankruptcy,” said Oversight Board Chairman David Skeel. “This plan reduces Puerto Rico’s debt to sustainable levels and its confirmation will provide a foundation for sustainable economic growth.”

Swain threatened to dismiss the case and ordered the bankruptcy parties to mediation on Monday. The meeting Monday and the subsequent legislation resolved differences between the board and the Legislature. If the case would have been dismissed, it would have caused Puerto Rico to lose bankruptcy protection against bondholder suits, Swain said, as she might “be forced to consider” dismissing the Title III and Title VI protections.

Bondholders and other creditors had also threatened to withdraw support of the plan without the legislatively approved new bonds.

"I thank the Financial Oversight and Management Board for its willingness to reach the consensus that Puerto Rico needs to focus on all the work that remains to be done to rebuild our island and give our people the government they expect and deserve,” Pierluisi said in a statement.