• The San Juan Daily Star

Debt adjustment plan confirmation hearings kick off today

Natalie Jaresko, executive director of the Financial Oversight and Management Board for Puerto Rico

By The Star Staff

The fate of Puerto Rico rests in the hands of the Title III Bankruptcy Court with the start of confirmation hearings today on the debt adjustment plan that will restructure some $33 billion in central government debt and over $50 billion in pension liabilities.

During the hearing, U.S. District Court Judge Laura Taylor Swain must determine if the DAP is in line with the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) in order to confirm the plan. PROMESA says the debt deal must be confirmed it it complies with the applicable provisions of the federal bankruptcy code and PROMESA itself; if the debtor is not legally prohibited from undertaking any actions necessary to carry out the plan; if the holders of claims will receive cash equal to the allowed amount of the claim unless there is another agreement; if any necessary legislative, regulatory, or electoral approvals necessary to carry out a provision of the plan have been obtained or the provision is conditioned on the approval; if the plan is feasible and in the best interest of the creditors; and if it is consistent with the fiscal plan certified by the board.

The parties will appear telephonically and by video conference at the hearing to consider confirmation of the Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, which is expected to last six hours today. The court set aside at least the entire week for the hearings.

The names of counsel and supporting parties who intend to present opening arguments and time allocations for each are set as follows: Financial Oversight and Management Board for Puerto Rico: Martin J. Bienenstock and Brian S. Rosen, 120 minutes; Lawful Constitutional Debt Coalition: Susheel Kirpalani, 10 min.; Puerto Rico Fiscal Agency and Financial Advisory Authority: John J. Rapisardi, 10 min.; Ambac Assurance Corp.: Dennis F. Dunne and Atara Miller, 8 min.; Financial Guaranty Insurance Co.: Martin A. Sosland and Adam M. Langley, 8 min.; National Public Finance Guarantee Corp.: Robert S. Berezin, 8 min.; Assured Guaranty Corp. and Assured Guaranty Municipal Corp.: Mark C. Ellenberg and William J. Natbony, 8 min.; the Official Committee of Retired Employees: Catherine L. Steege, 10 min.; and the Official Committee of Unsecured Creditors: Luc A. Despins, 8 min.

The opposing parties that will present opening arguments are the DRA Parties a. AmeriNational Community Services LLC: Arturo J. Garcia-Solá and/or Nayuan Zouairabani, 35 min.; Cantor-Katz Collateral Monitor LLC: Douglas Mintz, 28 min.; Peter C. Hein (pro se): 30 min.; PFZ Properties Inc.: David Carrión Baralt, 8 min.; Sucesión Pastor Mandry Mercado: Charles A. Cuprill, 8 min.; Suiza Dairy Corp.: Rafael A. González Valiente, 8 min.; Finca Matilde Inc.: Eduardo J. Capdevilia Díaz, 8 min.; U.S. Bank Trust National Association and U.S. Bank National Association: Ronald J. Silverman, 8 min.; Service Employees International Union and International Union, United Automobile, Aerospace and Agricultural Implement Workers of America: Peter D. DeChiara; Credit Unions: Enrique M. Almeida, 8 min.; Mapfre PRAICO Insurance Co.: José Sánchez-Girona, 10 min.; Underwriter Defendants: Howard Steel, 12 min.; Arthur Samdovitz (pro se): 12 min.; and Puerto Rico Teachers Association (PRTA) and PRTA-Local Union: Jośe Luis Barrios-Ramos, 10 min.

The government anticipates calling the following witnesses to testify at the confirmation hearing on Nov. 10 in the following order: Natalie A. Jaresko, executive director of the oversight board; David A. Skeel, chairman of the oversight board; Steve Zelin, partner and head of the Restructuring and Special Solutions Group in the Americas at PJT Partners Inc.; Sheva Levy, principal at Ernst & Young LLP; Gaurav Malhotra, principal and head of the U.S. Restructuring Practice at Ernst & Young LLP; and Ojas Shah, partner at McKinsey & Co.

Last week, the oversight board filed a proposed eighth amended Commonwealth Plan of Adjustment (POA) that includes no cuts to the pension benefits of active and retired government employees, as provided in Act 53-2021, the law enabling the POA, to authorize the issuance of new general obligation (GO) bonds.

The oversight board said the POA is a historic opportunity for Puerto Rico to reduce the commonwealth’s outstanding debt by almost 80%, from $33 billion to $7.4 billion, which would be converted to new GO debt as part of a bond exchange. The plan would also reduce the commonwealth’s total debt service payments (including Puerto Rico Sales Tax Financing Corp., or COFINA, senior bonds) by more than 60%, from $90.4 billion to $34.1 billion, saving Puerto Rico almost $60 billion in debt service payments.

The debt adjustment plan presents 66 classes of claims and describes how each will be treated. It contains three plan support agreements, or PSAs. They are the one reached with the GO and Public Buildings Authority bondholders; the agreement reached with the Official Committee of Retirees (COR) and the agreement reached with the Public Servants United of Puerto Rico (SPU)/American Federation of State, Country and Municipal Employees (AFSCME) Council 95 related to pensions and collective bargaining agreements.

The agreement also calls for the creation of several reserves to ensure funding because the current fiscal plan projects deficits in the future. One of them is a pension reserve fund for the PayGo pension system to support payment of pensions over the next 30 years.

Another is a debt service fund to be held by the new GO Bonds Trustee in trust for the benefit of the holders of the new GO bonds to be created under the plan. The fund has a requirement level of at least $211 million.

The oversight board proposes that the government compensate creditors with a combination of cash, future tax collections and the promise of additional payments if the economy -- and therefore collections -- exceed the projections in the Fiscal Plan. Specifically, the plan will use about half of the cash in the General Fund coffers to pay creditors. In the case of bondholders, they will receive $7 billion in cash as well as another $7.4 billion in bonds and up to $3.5 billion as part of a contingent value instrument, or CVI.

Puerto Rico will not be able to borrow soon, since the level of indebtedness allowed will be, in essence, half of the constitutional margin. All the debt issued by the government will be subject to the laws of New York and not PROMESA.

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