• The San Juan Daily Star

Gov’t repeals 1942 law that undergirded fiscal board’s ‘plan B’

Speaker of the Puerto Rico House of Representatives Rafael Hernández Montañez

By The Star Staff

Despite allegedly reaching an agreement on the debt deal with the Financial Oversight and Management Board, the Puerto Rico government nonetheless enacted a law that repealed a 1940s law the oversight board said could facilitate the enactment of a “plan B” to execute its deal to restructure $35 billion in commonwealth debt without the cooperation of the central government.

The governor signed into law House Bill 959, which returns to the Legislature its key role in approving budgets and bond issues, and repeals a 1942 law that allows the government to issue new bonded debt.

Back in July, the oversight board told the federal bankruptcy court there were a number of ways to enact the plan in the event that the government makes good on its threat to refuse to pass legislation contemplated in the plan support agreement (PSA).

Proskauer Rose LLP’s Martin Bienenstock, a lawyer for the oversight board, said in court that possibilities include relying on a 1940s-era law that allows for the refinancing of existing general obligation (GO) debt.

The board’s preference is to win the cooperation of Puerto Rico’s governor and Legislature, which refused to enact legislation that would enable the plan because they both oppose a cut of 8.5% to all pensions higher than $1,500 a month contained in the debt deal.

The oversight board has warned previously that a lack of government cooperation with the plan of adjustment could lead creditors to abandon the deal.

John Mudd, a bankruptcy lawyer, said the oversight board could seek the annulment of a law if it violates the fiscal plan pursuant to the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA. The oversight board is currently in court to annul Act 7 of 2021, the Dignified Retirement Act, which would ban cuts to pensions.

House Speaker Rafael Hernández Montañez has said he is willing to enable the debt deal if the $1,500 per month threshold for pension cuts is increased to $2,000. Senate Treasury Committee Chairman Juan Zaragoza Gómez said Thursday that the oversight board was willing to make that change (see story on page 4).

Mudd noted that the Legislature does not understand that the bankruptcy judge, U.S. District Court Judge Laura Taylor Swain, cannot change the debt deal. Her role is to either confirm it or not. She could also dismiss the Title III case altogether.

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