In dollars and cents, the Board proposal seeks to reduce the $35 billion of the Commonwealth-related bonds outstanding to less than $12 billion. (GFR Media)

The Oversight Board reached an agreement with the Lawful Constitutional Debt Coalition (LCDC), a group that brings together certain major creditors owning about $ 3 billion in General Obligation (GOs) and Public Buildings Authority (PBA) bonds, who would be paid 73 and 64 percent, respectively, of the principal invested.

After agreeing with the LCDC, who have GOs and PBA bonds issued before 2012, the Board unveiled a plan proposing to pay between 35 and 58 cents on the dollar to owners of allegedly invalid GOs and PBA bonds who decide to negotiate with the federal entity.

The plan also provides to pay just another 9 cents on the dollar to the rest of the central government debt, including the debt of the Retirement Systems Administration (ASR, Spanish acronym), the Highways and Transportation Authority (PRHTA), as well as suppliers and other unsecured creditors.

In that sense, the terms proposed by the Board could be interpreted as a "cram down" on the rest of bondholders and creditors of the Puerto Rican government.

On average, the adjustment in all these bond issues would imply a haircut of almost 59 percent of the principal. In other words, on average bondholders would receive almost 42 cents of what they invested.

According to the documents released by the Board, the recovery cap for LCDC bondholders is 89 percent.

In dollars and cents, the Board proposal seeks to reduce the $35 billion of the Commonwealth-related bonds outstanding to less than $12 billion.

According to the Board, “the agreement with bondholders, along with the restructuring agreement for the Puerto Rico Sales Tax Financing Corporation (COFINA) approved in February reduces the Commonwealth´s annual debt service payable in any future year by more than 70 percent from $4.2 billion annually to below $1.5 billion a year.” Currently, without modifying the current debt, the average debt service totals about $2.7 billion.

The plan support agreement (PSA) released Sunday evening would join the Board’s agreement with the Official Retirees Committee (COR, Spanish acronym) announced last week. That agreement would cut up to 8.5 percent of the pensions of about 60,000 retirees in Puerto Rico.

And also joins the agreement signed with the United Public Servants Union (SPU, Spanish acronym). A third agreement, this time with the Puerto Rico Teachers Association (AMPR) was rejected by teachers in a vote last week.

“The support agreement with creditors and the agreement with COR and the unions are milestones for Puerto Rico on the path towards a future with sustainable debt payments, secure pensions, and fiscal stability,” said the Board´s chairman José B. Carrión in written statements.

 “A Commonwealth plan of adjustment will provide investors with confidence that Puerto Rico has turned the corner after its financial crisis. The people of Puerto Rico will finally live without the uncertainty of unsustainable government debt that so profoundly affected the Commonwealth´s ability to attract investors, create jobs and economic growth,” Carrión added.

Meanwhile, the Board’s executive director Natalie Jaresko said that they are “glad to have reached a consensual agreement with creditors that lowers Puerto Rico’s total debt burden and its annual debt payments significantly.”

Without government support

The agreement with LCDC, like the proposal for the rest of the GOs and PBA bondholders, was made public just 48 hours after the government representative before the Board, Christian Sobrino Vega, told the press that the Ricardo Rosselló Nevares’ administration would not endorse any Title III adjustment plan including a cut in pensions.

Last night, Sobrino,  also executive director of the Fiscal Agency and Financial Advisory Authority (FAFAA) reaffirmed that position by warning those bondholders who agreed with the Board that the government will not take any action necessary to implement the agreement.

"Not one word of the PSA (Plan Support Agreement) is considered acceptable to FAFAA. And we can confidently state that no legislation, executive action or other administrative approval required from the Government of Puerto Rico will be taken to implement an agreement that directly or indirectly supports a Plan of Adjustment that cuts payments to our retirees,” Sobrino Vega said.

"Any financial compensation included in the PSA that seeks to encourage support or subscription to the PSA should not be presumed to be available now or in the future given that the government of Puerto Rico has not provided its consent to it," he insisted.

Positive Development

Meanwhile, Susheel Kirpalani of Quinn Emanuel Urquhart & Sullivan, LLP, representing the LCDC, described the agreement as “a very positive development for Puerto Rico.”

According to Kirpalani, who previously represented COFINA’s main bondholders, the agreement between the Board and the LCDC was the result of three months of negotiations.

According to Kirpalani, GOs and PBA bondholders who sign the agreement will receive a combination of new bonds and cash, with the General Fund revenues as a source of repayment.

Countdown has begun

The agreement and the proposal the Board disclosed last night comes after last week the Board’s legal counsel Martin Bienenstock told Judge Laura Taylor Swain that his client would file the adjustment plan in 30 days and that it could include an offer to settle litigation seeking to invalidate about $ 10 billion in GOs and PBA bonds.

The Board expects Puerto Rico to have an approved adjustment plan in early 2020.

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