The Puerto Rico Oversight Board indicated it would offer 9% reimbursement for Employees Retirement System bonds but was hazy how it would handle $8 billion more of Puerto Rico debt.
The board is offering a total of $276 million, of which $200 million has already been paid, for the ERS bonds, Oversight Board Executive Director Natalie Jaresko said in a press call Tuesday. This is for $3.17 billion of ERS bond claims.
The board's plan of adjustment for the central government debt and a related 2,035 page disclosure statement was released Monday evening.
The board is offering to pay the ERS settlement exclusively in cash.
The board’s plan offers total payment of 41.2% to 51.2% of $35 billion of central government claims, depending on whether contingent value instrument bonds are paid.
The plan offers fixed payments of $7.024 billion in cash and $7.414 billion in new general obligation bonds. These totals exclude possible contingent value instrument (CVI) bond payments, which would be in cash.
On $8.12 billion of non-guaranteed central government debt, the board remained fuzzy, despite the release of the plan and disclosure statement. At issue are $5.78 billion in claims against the Highways and Transportation Authority, $1.89 billion in claims in the Puerto Rico Infrastructure Finance Authority rum bonds, $.41 billion in Convention Center claims, and $.03 billion in Metropolitan Bus Authority claims.
Jaresko said the entities’ bonds would be paid through claims on the underlying authorities and through “claw back claims” against Puerto Rico’s central government. The former remain undefined in the documents that were released. Jaresko pointed out that HTA is in a separate Title III bankruptcy and will have its own plan of adjustment. She suggested that some of the other entities might have some money to pay the bond claims against them. Anything they do not pay is defined as a “deficiency.”
The plan’s
The board said there would be $0 paid for Puerto Rico appropriation debt issued by the Public Finance Corp.
The plan includes 66 classes of claims. Many claims are distinguished simply by the year that they were sold. Voting on the plan will be done class by class. Some bondholders may challenge the voting class structure, several observers have said.
"I think [the plan] has a good chance of being confirmed except for the legislature opposition," Puerto Rico Attorney John Mudd said. "Then again, the disclosure statement again mentions that if the legislature refuses to cooperate, the board will ask Judge [Laura Taylor] Swain to act via section 305 of PROMESA, although there is no guarantee she will agree. If there is no cooperation by the legislature and Judge Swain does not agree with the board's request, the Title III would be dismissed via 11 USC sec. 930."
In the current plan the central Puerto Rico government would pay a CVI bond that would pay up to 30% of the deficiency.
Jaresko said the board continued in confidential mediation talks with creditor groups holding these so-called claw back bonds as well as holders of ERS bonds and unsecured creditors.
The central government clawed back the revenue streams for these bonds, starting even before the Puerto Rico Oversight, Management, and Economic Stability Act was passed in summer of 2016. The “Clawback CVIs” would reverse this revenue path and allow the central government to pay back some of this money to the bondholders.
However, the GO CVIs are to normally get 45% of outperformance of the commonwealth’s sales and use tax revenues in fiscal years 2022 to 2052. By comparison, the Clawback CVIs would only get 5% of this outperformance.
In years 1 to 22 the maximum annual Clawback CVI payment would be $50 million. In years 23 to 30 this would raise to $250 million annually.
