The Puerto Rico Oversight Board is moving closer to approval of a plan of adjustment for about $19 billion of central government bonds.
The board said it would “address issues related to the debt restructuring of Puerto Rico” at a public meeting at 9 a.m Friday, spurring speculation that members are about to vote on a plan that includes nullifying portions of the debt that they have said were issued illegally.
On Sept. 11 board attorney Martin Bienenstock told Title III bankruptcy judge Laura Taylor Swain that the board planned to submit the plan by the end of the month. The board’s members generally meet publicly to vote on official documents that they have already decided in private to support.
While the board had initially said its meeting would be Thursday morning, at 7 p.m. Wednesday it announced that the session was postponed.
“I think they’re running with what they want to do, rather than talking with all the parties and coming to a resolution acceptable to all,” said Shaun Burgess, portfolio manager at Cumberland Advisors. Cumberland owns insured Puerto Rico bonds.
“There are a lot of unanswered questions about debt validity,” Burgess said. “It will be interesting how they address these.”
If the plan’s recoveries are inadequate, or if some debt is treated disparately, the bondholders will vigorously fight the proposed plan, Burgess said.
In June the board released a plan support agreement that had contingencies if the court agreed with it that certain general obligation and Public Building Authority bonds should be considered invalid and not paid.
According to the June plan support agreement, if the court determines that the bonds are invalid and shouldn’t be paid, more money would go to GO and Commonwealth-guaranteed PBA bonds issued before 2012. In this case, the PBA bonds would get 87.3%. Earlier-issued GOs would get 83.4%. If the court determined the opposite, earlier-issued PBA bonds would get 75.6% and the early-issued GOs would get 68.2%. It remains to be seen how closely the plan of adjustment conforms to the plan support agreement.
In all cases in June's plan support agreement, non-GO and non-PBA central government bonds would get hit hard, receiving only about 9% recoveries.
If board goes ahead with approving a plan of adjustment, the board’s attorneys would submit the plan to the Title III court. Documents in the Puerto Rico bankruptcy are available free of charge at:
The plan of adjustment would also address $48.7 billion in pension liabilities.
The board is scheduled to hold a 1 p.m. meeting Thursday on the status and impact of ease of doing business reforms being carried out by Puerto Rico’s government. Both meetings will stream on the board’s web site:
On Tuesday 10 members of Congress sent a letter to the board. They said the board’s “fiscal plan focuses on creating a significant fiscal surplus, prioritizing the demands of Wall Street Vulture Funds over the needs of the Puerto Rican people…. The terms of the deal with the creditors are for more generous than what the [Oversight Board’s] own long-term estimates indicate that Puerto Rico is able to pay.”
