A bill to support the bond restructurings in the proposed Puerto Rico Plan of Adjustment faltered in the Puerto Rico Senate.
While the Puerto Rico House of Representatives approved the bill, authored by House President Rafael Hernández Montañez, Senate President José Luis Dalmau, who supports the bill, decided to delay the vote because he believed it would not pass.
While not necessarily opposed to the bill, some senators wanted more time to read it, especially the portion regarding pension protection, according to the El Nuevo Día news website. Dalmau said the vote would be taken on Thursday.
The bill will likely pass, said one bondholder, who wished to remain anonymous. New Progressive Party Senate Minority Leader Thomas Rivera Schatz leads the Senate opposition for self-interested reasons, the bondholder said. Rivera Schatz is trying to line himself up as a gubernatorial candidate against Gov. Pedro Pierluisi, who is also a member of the NPP.
Some senators are opposing the bill for political reasons, agreed Oversight Board Member Justin Peterson. “I can’t overstate how misguided this is. If we don’t pass this bill, the next time will be much more expensive [for Puerto Rico.]”
If the bill does not pass, the bondholders who signed onto the Plan Support Agreement that underpins the bond portion of the Plan of Adjustment will withdraw from the PSA, the bondholder said. Without the bond PSA, the Plan of Adjustment collapses.
At that point, the bondholders will turn to the court, the bondholder said. Given the high priority Puerto Rico’s constitution gives the guaranteed debt and the health of Puerto Rico’s economy, they are likely to get much better terms from the court, the bondholder continued. In effect, any legislators who vote against the bill would be shooting themselves in the foot.
"This is a bipartisan agreement to end bankruptcy and protect pensions," Peterson said. "It's decision time."
Members of the Senate are discussing whether a provision of the bill would fully protect pensions. The board has offered to not cut the number of dollars paid to current pensioners. However, it has insisted on ending cost-of-living increases and on converting members of the judiciary and teachers to a defined contribution plan from a defined benefit plan.
The board has said as part of the Puerto Rico Oversight, Management, and Economic Stability Act, it has the legal power to adjust both debts and pensions. While it has said it would prefer the local government’s enactment of legislation to support the debt adjustment, the board believes it has complete control over the pensions. If the bill does not explicitly reject its pension change plans, the board would institute them through the Plan of Adjustment, a board source said.
Even if the board has the power to legally adjust bond debts, the current Plan of Adjustment is partially based on the bond PSA. And the bond PSA specifies the local government will pass legislation to support it. So, if that does not happen, the bondholders may withdraw from the PSA, which would effectively end the proposed Plan of Adjustment.
Even if the Senate joins with the House in approving the bill, the board will have to look at the amended bill to see if it is acceptable to the board, a board spokesman said.
Peterson said he thought the bill passed by the House is consistent with what the board has asked.
