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José Carrión and Natalie Jaresko. (GFR Media)
José Carrión and Natalie Jaresko. (GFR Media)

Governor Wanda Vázquez Garced asked yesterday Judge Laura Taylor Swain to reject the Oversight Board's request to schedule a disclosure statement hearing to discuss the recent agreement with certain constitutional bondholders, arguing that the process will be a waste of time and money because her administration and the Legislature do not support the agreement.

"The Oversight Board now seeks to prematurely begin a costly and time-consuming confirmation process on an amended plan (which has not yet been filed) that is simply not feasible without government

FAFAA's motion was the government's response to the call made a week ago by the Board’s executive director Natalie Jaresko for the governor and the Legislature to "understand" the value of the new agreement and the importance of getting Puerto Rico out of bankruptcy.

The agreement

On February 9, the Board, the Lawful Constitutional Debt Coalition (LCDL) and other bondholders agreed to reestructure some $18 billion in General Obligations (GOs) and Public Buildings Authority (PBA) bonds, accepting a cut of about 25 cents.

The agreement, which would result in an amended POA, reduces the maturity of the General Fund debt payable to 20 years and reduces the annual debt service to $1.5 billion. That figure was initially agreed with the LAS when the Board filed the first adjustment plan last September, but it excludes the debt payment of the Puerto Rico Electric Power Authority (PREPA), the Puerto Rico Aqueducts & Sewers Authority (PRASA), and the University of Puerto Rico, among others.

Now, the new agreement redistributes the agreed cut among bondholders and they will receive in exchange some $3.8 billion in cash (some $900 million more than in the initial agreement), as well as GO bonds and subordinated bonds from the Sales Tax Financing Corporation (Cofina). The agreement also recognizes the debt that the Board previously claimed was void and gives those creditors priority for collection.

The Board's plan - according to the amended mediation report filed by Judge Barbara Houser - is that Judge Swain discusses the agreement at the general hearing on March 4 and that the confirmation process continues up until it is discussed in court next October.

Government's objection

However, according to the Vázquez Garced administration, the current terms are not in the best interests of the people of Puerto Rico and improves  conditions for bondholders without bringing relief to pensioners. On that side of the equation, the Board maintains the agreement with the Official Retirees Committee (COR) to cut public pensions over $1,200 monthly.

"The Oversight Board now seeks to prematurely begin a costly and time-consuming confirmation process on an amended plan (which has not yet been filed) that is simply not feasible without government support," reads FAFAA motion, signed by John J. Rapisardi and Peter Friedman, members of O'Melveny Myers and leading FAFAA lawyers in the restructuring process.

According to FAFAA, the Board's proposed settlement, cannot be confirmed because PROMESA Section 314 requires the court to ensure that "any legislative, regulatory, or electoral approval necessary under applicable law in order to carry out any provision of the plan has been obtained."

FAFAA's motion states that since the Board does not have the support of the government to pass new legislation contemplated in the PSA, the Board cannot demonstrate, and therefore the court cannot find, that that confirmation requirement will be met.

FAFAA said that any POA that includes the terms of the PSA without addressing at least better conditions for pension claims will be fundamentally flawed and not confirmable because the requirements for viability and the necessary legislative approvals will not be met.

The deal between the Board - which assumes the government's role as debtor in Title III cases - and which the government objects to, has its origins in the mediation process ordered by Judge Swain last year. The Board must file the POA on or before February 29.

Just as Vázquez Garced formally rejects the pact with the CDL, municipal insurance companies also object the plan.

The Unsecured Creditors Committee (UCC) -which, in turn, objects to the Board's dropping litigation to invalidate part of the public debt- is also trying to stop the process promoted by the Board