• The San Juan Daily Star

Fiscal board: Consequences could be severe if debt deal enabling bill is not enacted by 2 pm. Friday


The oversight board warned that creditors could exercise their right to terminate the debt deal as a result of the failure to enact House Bill 1003 by Friday’s deadline, forcing the island to pay penalties.

By The Star Staff


The Financial Oversight and Management Board warned the Puerto Rico Legislature on Thursday that if a bill enabling a deal that would restructure some $33 billion in central government debt is not enacted into law by 2 p.m. Friday, it will be forced to seek adjournment of the confirmation hearing set for next month.


The oversight board warned that creditors could exercise their right to terminate the debt deal as a result, forcing the island to pay penalties.


A conference committee report creating a single version of House Bill 1003, the debt deal enabling bill, was approved by the House but is pending a vote in the Senate.


In a statement, the oversight board said it was looking forward to the Puerto Rico Senate’s upcoming vote on legislation to approve the issuance of the new general obligation (GO) bonds that are part of the 7th Amended Plan of Adjustment.


“The stakes for Puerto Rico are incredibly high. Failure to pass this legislation means that Puerto Rico remains mired in a cloud of bankruptcy, stifling its ability to grow and attract needed investment,” the oversight board said. “In addition, pensions will not be protected, and the Plan will not be amended to provide added support to the University of Puerto Rico and for municipalities.”


“If HB 1003, passed on October 19, 2021, is not enacted into law by 2 p.m. on Friday, October 22, 2021, the Oversight Board will be forced to seek adjournment of the confirmation hearing in the U.S. District Court for the District of Puerto Rico,” the board warned. “As a result, Puerto Rico would remain in bankruptcy and the burden of unsustainable debt will remain on the shoulders of all Puerto Ricans, threatening economic progress on the island.”


The consequences of failure could be severe, including that creditors may request that the moratorium on debt payment in place right now be lifted, leading to a chaotic demand for payment based on available cash and undermining the government’s ability to function.


Creditors would become eligible to receive $100 million as a termination fee if they exercise their right to terminate their agreement to support the debt adjustment plan. They could potentially make new, greater demands for repayment, based on public statements regarding potentially available incremental funds, the oversight board said.


The board also warned that litigation would continue and greatly increase costs and time to exit bankruptcy, and the duration of the oversight board would be extended by the time lost in such a process.


The benefits of the plan on file in the U.S. District Court may be lost to all stakeholders, the board further warned. Teachers and judges would not be eligible for the U.S. government’s Social Security benefits and would continue to depend on payments from the budget of a government that drove their pension plan into bankruptcy.


The oversight board then highlighted the benefits of the debt adjustment plan, which reduces the commonwealth’s outstanding debt by 80%, from $33 billion to $7 billion, and yearly debt service payments to $1.15 billion. The plan enables the government to pay just over 7 cents of each tax dollar for debt service, as compared to up to 25 cents prior to any restructuring. It also provides considerable security to future pension recipients by establishing a pension trust funded with at least $175 million per year for the next several years and allocating the largest part of excess surplus to the pension trust.


The plan transfers more than $1.2 billion and restores employee contributions to Sistema 2000 that were used by previous governments, and provides thousands of civil service employees up to $100 million in lieu of interest in their defined contribution accounts.


“Failure to enact House Bill 1003 passed on October 19, 2021, puts Puerto Rico at risk of losing a historic opportunity to sustainably recover from years of economic decline, governance failures, and fiscal recklessness,” the oversight board said.