June 28, 2022

Puerto Rico Restructuring Agreement

The latest debt restructuring agreement comes after nearly five years of repayment negotiations with bondholders who own Puerto Rico`s debt. This debt has accumulated after decades of excessive borrowing, mismanagement and corruption. Since 2016, the Government of Puerto Rico has not made any debt payments. PROMESA allows the Government of Puerto Rico to stop debt payments while the Supervisory Board works on agreements with creditors to reduce debt to sustainable levels. If confirmed, Puerto Rico`s annual public debt payments would be reduced from $3.3 billion to $1.1 billion. At the same time, the island`s debt service would be reduced from 25% to 7.5%. FLORIDO: “There are a lot of people leaving Puerto Rico,” she said, “because the government makes it so difficult to live here.” After Puerto Rico defaulted on a $72 billion debt in 2016, Congress appointed a federal oversight body to manage the territory`s budget and negotiate with its creditors. This board has already reached agreements on smaller portions of this debt. This new agreement affects most of it – $33 billion – with creditors agreeing to accept billions less than they are owed. In February 2019, the U.S. District Court approved the Puerto Rico Sales Tax Financing Corporation`s (COFINA) adjustment plan, the first debt restructuring completed under ProMESA Title III. Puerto Rican authorities have reached an agreement with the island`s creditors to restructure the massive debt burden that led them to bankruptcy four years ago. The American territory has given in under the massive weight of more than 70 billion dollars that it owes.

Now a federal bankruptcy judge is considering whether to approve the deal. A federal executive overseeing Puerto Rico`s bankruptcy this week filed a new debt restructuring plan for the U.S. territory that retains pension benefits for retired public sector employees, a point of contention that threatened to derail the debt restructuring agreement. If Swain rejects the debt restructuring agreement, the Federal Tax Supervisory Board and bondholders will have to conduct further negotiations, a process that could take weeks or even months. “The cost of the bankruptcy was paid with public funds from the Government of Puerto Rico paid by Puerto Rican taxpayers,” Pierluisi said. “All the federal government has done is provide Puerto Rico with a debt restructuring mechanism.” The Government of Puerto Rico and the Federal Fiscal Oversight Board, which administers the United States. The territory`s finances have agreed on a debt restructuring plan that could end the largest bankruptcy proceeding in U.S. history, which began in 2017. FLORIDO: Like most observers, Santamaria Ots says it is likely that Judge Laura Taylor Swain will now approve the debt agreement before her. But he hoped that she would give careful consideration to whether that was enough to protect the essential services that Puerto Ricans relied on.

FLORIDO: But the pain could get worse. Budget cuts have cut back on essential services in recent years, from public safety to health care and education. Many Puerto Ricans fear that these cuts will worsen because this new agreement, they say, will not cancel enough of the debt. The debt restructuring agreement now goes to U.S. District Judge Laura Taylor Swain, who is handling the bankruptcy proceedings after a series of hearings starting Nov. 8. The Board of Supervisors renegotiated Puerto Rico`s debt with one overarching goal: to reach an amicable settlement in puerto Rico`s best interests with as many stakeholders as possible. In collaboration with the Government of Puerto Rico, the Supervisory Board had already completed the restructuring of more than one third of the debt and was negotiating the completion of the Commonwealth and PREPA debt restructuring. Puerto Rico Governor Pedro Pierluisi told NBC News on Thursday that the Federal Supervisory Board had agreed to change its previous version of the plan to eliminate pension cuts and provide more funding to the island`s public university system after longstanding disagreements over the two issues. Without restructuring, the central government alone would have provided up to $3.9 billion in debt payments to creditors each year. Before PROMESA, 25 cents of every dollar collected by the government in taxes and fees was used to pay off the debt. More than 165,000 creditors submitted proof of claim.

Creditors range from mutual funds and hedge funds to individual residents of Puerto Rico and retirees who are eligible for a state pension, among others. Puerto Rico`s $70 billion national debt could fall to $34 billion, while the debt of public building authorities and general obligations could be reduced from $18.8 billion to $7.4 billion. . In March 2020, the Supervisory Board requested the U.S. District Court to suspend the process of confirming the adjustment plan to allow for a full assessment of the impact of the COVID-19 pandemic on Puerto Rico and its economy. “This is going to translate into huge savings for Puerto Rico,” Pierluisi said. “We will pay one-third of the debt service we paid before this insolvency proceedings began.” Puerto Rico`s public pension obligations amount to approximately $55 billion. The largest pension system was about 1% funded.

Even states with severely underfunded public pension systems, including New Jersey, Kentucky, and Illinois, still maintain a capital ratio of more than 30 percent. PRADOS: If we can`t afford this new adjustment plan, we will have more austerity in Puerto Rico. We will further reduce public funding – in education, in health care, in public universities. When PROMESA went into effect in 2016, Puerto Rico faced an unsustainable burden of more than $72 billion in debt and more than $55 billion in uncovered pension obligations, with no legal way to restructure the government`s liabilities and stabilize its finances. Puerto Rico had lost access to capital markets. PROMESA has established the Puerto Rico Financial Supervisory and Management Board and provides a mechanism for the Supervisory Board to negotiate with creditors on behalf of Puerto Rico in order to adjust the debt to a sustainable level. .