Fiscal board informs markets it has achieved 70% attainment with latest PSA
By The Star Staff
A day after the Financial Oversight and Management Board for Puerto Rico announced a new plan support agreement (PSA) to restructure some $18 billion of the total $35 billion in commonwealth debt, the federal entity informed the markets Wednesday that it has obtained a 70% attainment but will continue to accept joinders until March 9.
“In accordance with Section 4.1 of the PSA, the Oversight Board announces that, based upon the joinders received, the PSA Threshold Attainment, 70% of all General Obligation (GO) bond and Public Buildings Authority (PBA) bond claims, has been achieved and, unless parties terminate the PSA as to themselves, further joinders received will not entitle the joinder party to receive the PSA Restriction Fee,” a document posted to the markets said.
Specifically, the oversight said it is possible that, pursuant to the terms of the PSA, parties may terminate their support for the proposed transaction and, therefore, the current level of support may fall below the PSA threshold attainment. For that reason, it will continue to accept joinders to the PSA up to and including the joinder deadline, March 9, 2021, at 11:59 p.m. (Eastern Standard Time).
The oversight board announced that it had reached a new PSA that will replace one agreed upon in February 2020 before the COVID-19 pandemic impacted Puerto Rico’s finances and forced negotiations for a new debt agreement. The PSA would reduce $18.8 billion of commonwealth debt held by GO bondholders and PBA bondholders by 61%, to $7.4 billion; would provide GO and PBA bondholders with $7.4 billion in bonds and $7 billion in cash up front; and includes a contingent value instrument (CVI) that gives GO and PBA bondholders incremental value only if the Puerto Rico economy grows more than projected in the 2020 Certified Fiscal Plan. The CVI consists of GO bonds that will be paid using a portion of the sales and use tax revenue if tax collections exceed the estimates of the fiscal plan certified in May.
Pursuant to the PSA, other holders of GO bonds and PBA bonds were invited to join the PSA and support the terms of a proposed plan of adjustment for such bonds and be entitled to receive a PSA restriction fee in consideration for such support and the agreement to restrict the trading of bonds during the term of the PSA.
“The ability to join in support of the PSA is limited to receiving joinders up to the amount of the PSA threshold attainment, 70% of the principal amount of the GO Bonds and PBA Bonds outstanding,” the notice said.
When asked about the threshold level, David Skeel, chairman of the oversight board, said the PSA had the support of 60% of the bonds. He said the PSA needs approval of two-thirds of each class of bonds but “keep in mind that is two-thirds of those who vote” so “60% may well be in practice enough to confirm a plan because not every bondholder will vote but, we of course, would like to get it over the threshold.”
Annual debt service payments under the new PSA will be $1.15 billion, down from $1.47 billion in the February PSA.
The PSA requires legislation to conduct the bond exchange and the CVI. Gov. Pedro Pierluisi Urrutia said in a statement Tuesday that a new debt adjustment plan should not impact retirees and while he supports it, the government will not sign off on it.
The PSA does not contain language on the pensions, but Natalie Jaresko, the executive director of the oversight board, said language on pensions will be included in the debt adjustment plan to be filed March 8. The board is proposing an 8.5% cut to pensions higher than $1,500 a month, but the deal will also include the creation of a pension reserve.