Top Stories
Top Stories
Debt

Major plan for Puerto Rico debt coming this month, attorney says

Key Points
  • A long-awaited plan to restructure Puerto Rico's core government debt will be filed in court later this month.
  • The latest delay was due to political turmoil on the island that led the  resignation of Governor Ricardo Rossello.
  • Puerto Rico entered bankruptcy in May 2017 to restructure $120 billion of debt and pension obligations.
A person carries a Puerto Rican national flag during a protest against the government's austerity measures as Puerto Rico faces a deadline on Monday to restructure its $70 billion debt load or open itself up to lawsuits from creditors, in San Juan, Puerto Rico May 1, 2017.
Alvin Baez | Reuters

A long-awaited plan to restructure Puerto Rico's core government debt will finally be filed in court later this month, an attorney for the bankrupt U.S. commonwealth's federally created financial oversight board told a federal judge on Wednesday.

Martin Bienenstock said the latest delay was due to political turmoil on the island that led to last month's resignation of Governor Ricardo Rossello, who was eventually replaced by Wanda Vazquez.

He said while the board expected to file a plan in August, it held off because "it would have jammed" the new governor, who took office on Aug. 7.

The board had signaled it could file a plan of adjustment covering roughly $13 billion of bonds and almost $50 billion of unfunded pension obligations as early as April, then set subsequent but vague deadlines in the following months.

Puerto Rico entered bankruptcy in May 2017 to restructure $120 billion of debt and pension obligations.

Bienenstock said "the relationship between the new government and the oversight board is positive." Vazquez, who had been Puerto Rico's justice secretary, has been meeting with oversight board officials. Her predecessor, Rossello, had been at odds with the board over spending priorities and other matters, including proposed pension cuts.

Earlier this year, the board asked U.S. District Court Judge Laura Taylor Swain, who is hearing the island's bankruptcy cases, to void billions of dollars of general obligation bonds. It also sued certain bondholders to recoup debt service payments and Wall Street banks and firms that participated in debt issuances.

The board in June announced deals with some creditors over recovery rates for certain bonds and for a pension restructuring.

In July, Swain ordered mediation that could extend into November over the validity of Puerto Rico's GO and other bonds, as well as for other disputes.

So far, Puerto Rico has won court approval for restructurings of debt from its Government Development Bank and Sales Tax Financing Corporation known as COFINA. On Monday, the Puerto Rico Electric Power Authority move closer to exiting bankruptcy when two holdout bond insurers joined a deal to restructure its debt.

Next Article
Key Points
  • The agreement, which is on the framework for the plan of adjustment, provide for more than a 60% average haircut for all $35 billion, a 36% haircut on pre-2012 general obligation or "GO" bonds, and a 27% haircut on public authority bonds.
  • Of the roughly $13 billion in outstanding GO bonds, the bonds issued pre-2012 would receive 64 cents on the dollar, while the 2012 and 2014 GO bonds have a settlement option of receiving 45 cents on the dollar and 35 cents on the dollar.