Debt adjustment plan amended, refiled after deal reached with unsecured creditors

By The Star Staff

Lawyers for Puerto Rico’s Financial Oversight and Management Board told U.S. District Court Judge Laura Taylor Swain on Tuesday that a deal has been reached that will bring the Unsecured Creditors Committee on board with the amended commonwealth plan support agreement.

As a result, the commonwealth debt adjustment plan that would restructure some $35 billion in central government debt was amended and the newest version filed Monday night. The unsecured creditors objected to the fact that the plan separated pension claims for unsecured claims in violation of court precedent as well as the level of their recovery, which is less than 5%. The agreement also hikes their recoveries to $575 million from the current $125 million.

“We were able to reach an understanding with the unsecured creditors committee yesterday on the terms of modified treatment for the holders of general unsecured claims and imminent domain claims,” said Brian Rosen, a Proskauer Rose lawyer who represented the Oversight Board.

Rosen said the oversight board is also attempting to reach agreements with bond insurers Ambac Assurance Corp. and Financial Guaranty Insurance Co. (FGIC) related to the adequacy of the debt disclosure statement. The judge granted the bond insurers’ request to push back their testimonies to allow the talks to move forward.

Karen Miller, a lawyer for Ambac, said the bond insurer hopes to be able to reach a debt deal.

“We are still in active discussions with the oversight board,” she said.

Ambac presented several objections, including that pension liabilities were overstated and that the oversight board’s preemption attempts to force a plan may be overstated.

The FGIC has also had several objections, including that its insured bonds are in the same class as other insured general obligation (GO) bonds but are treated differently.

The fifth amended plan of adjustment filed Monday eliminates a debt service reserve fund for creditors and diverts the funds to hike creditors’ recoveries.

Besides eliminating the debt services reserve fund, the fifth amended plan adds a provision that the contingent value instrument (CVI) will not be subject to any commonwealth tax or withholding obligation. The CVI is an instrument that would pay GO and Public Buildings Authority (PBA) bondholders billions more in debt service if sales and use tax collections outperform projections.

The plan includes additional classes of creditors consisting of federal government agencies, which are unimpaired, and adds three classes of claims that previously had no recoveries.

Class 11, consisting of holders of PBA/DRA claims, are to receive 10% of such claims in cash.

Class 12, consisting of holders of PBA general unsecured claims, will receive 10% of such claims in cash, and Class 13, consisting of holders of PBA/DRA unsecured claims, will also get 10% of such claims in cash.

It adds two classes of claims to include individuals who formerly participated in the Early Retirement System while employed by the commonwealth or other applicable public employers and have retired under early retirement programs such that their benefits are currently paid through payroll.

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