Puerto Rico restructuring gains support

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The Puerto Rico Oversight Board filed an amended plan of adjustment for the central government debt and announced that 31% more bondholders support the deal.

The board filed the proposed plan and a proposed disclosure statement around 10 p.m. Friday. The board created the plan of adjustment based on the plan support agreement it released on Feb. 9.

Puerto Rico Bankruptcy Judge Laura Taylor Swain

Whereas the board announced then that holders of $8 billion of the affected bonds supported the deal, this weekend the board announced that holders of $10.5 billion of the bonds support it.

Commenting on the plan’s release, Bill Fallon, chief executive of National Public Finance Guarantee, said: “We remain concerned about the Oversight Board’s determination to move forward with an unconfirmable plan that resulted from a process from which we and other significant long-term supporters of the island were deliberately excluded. The plan fails to comply with the Puerto Rico Oversight Management and Economic Stability Act, moves Puerto Rico further away from market access, and guarantees years of time-consuming and expensive litigation.”

According to the board, the plan affects about $35 billion in debt and other claims against the Commonwealth of Puerto Rico, the Public Building Authority, and Employees Retirement System.

The plan would cut the commonwealth’s debt and other claims by almost 70%, from $35 billion to about $11 billion. The $11 billion figure is about $1 billion less than the total found in the plan of adjustment the board proposed in September.

The plan “ensures sustainable and affordable annual debt service of less than 9% of government own-sourced revenues by reducing the maximum annual debt service by 64%, from $4.2 billion to $1.5 billion,” the board stated.

Since the board announced the terms of the plan support agreement in early February, Puerto Rico’s governor and leaders of both legislative bodies have announced their opposition to it. Since the legislature and governor would have to approve the issuance of any new debt specified by the plan, some observers have said this opposition is a major problem for the proposal.

In addition, in late February a group of Puerto Rico-based holders of Puerto Rico bonds, Backyard Bondholders, came out in opposition to the new plan.

Finally, a group of bond insurers who insure these bonds has also announced their opposition to it. They are Assured Guaranty, Ambac, National, and Financial Guaranty Insurance Company.

The board’s proposed plan of adjustment offers recoveries of between 54.1% and 65.8% for general obligation bonds and 70.9% and 76% for Public Building Authority bonds. It also provides as little as 3% for $16 billion of Employees Retirement System bonds and bonds subordinated to GO debt in Puerto Rico’s constitution.

According to Friday’s proposed plan, Puerto Rico bankruptcy Judge Laura Taylor Swain will consider the disclosure statement on June 3 and, later that month, start the process to consider the proposed plan of adjustment.

Creditors would vote on the agreement sometime from July to September. There would be a plan confirmation hearing in October.

Parties and Swain may talk about the proposed plan and disclosure statement at a Title III omnibus hearing scheduled for Wednesday.

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