Governor, AAFAF withdraw objections to debt plan on eve of hearings
By The Star Staff
Gov. Pedro Pierluisi Urrutia and the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) withdrew their objections Sunday to the debt adjustment plan that would restructure some $33 billion in debt and over $50 billion in pension liabilities.
The decision came after the Financial Oversight and Management Board last week 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 in order to authorize the issuance of new general obligation, or GO, bonds. Confirmation hearings for the plan are starting today.
“This Court has consistently encouraged the Government and the Oversight Board to work cooperatively within PROMESA’s power sharing framework, thereby minimizing delay and litigation costs and allowing for Puerto Rico’s expeditious emergence from the largest and most complex municipal restructuring in U.S. history,” the motion filed by the governor and the AAFAF stated. “In response to the Oversight Board’s announcement indicating its willingness to eliminate the pension cuts as contemplated under the Plan’s prior iteration and to allow for additional monies to be included in the Fiscal Plan, the Government enacted Act 53-2021, which authorizes the Plan transactions in a way that is not only fiscally sustainable and treats creditors fairly, but also respects important Government public policy priorities.”
Act 53-2021, which is the bill enabling the debt adjustment plan, would allow for the issuance of the new bonds and contingent value instruments, or CVIs, subject only to the oversight board’s removing the monthly benefit modification from the plan.
“The Act does not address potential pension freezes or the elimination of cost-of-living adjustments (COLAs); whether such provisions are lawful is an issue the Court must decide in the coming days within the context of the objections filed by the teachers’ and judges’ unions, respectively,” the motion read. “The Government believes both unions should be duly heard by the Court with respect to the issues raised in their objections.”
Puerto Rico’s debt restructuring began with the implementation of the Government Development Bank’s Title VI consensual debt modification — where its debt obligations were reduced from some $5 billion to $3 billion — followed by the confirmation and implementation of the Puerto Rico Sales Tax Financing Corp. (COFINA) Title III plan of adjustment, in which COFINA’s debt obligations were reduced from some $18 billion to $12 billion.
The court now has before it the next and perhaps most important chapter in the complex restructuring process with the confirmation of the commonwealth, Employees Retirement System, and Public Building Authority’s plan, the government said.
“In addition to the claims against the Debtors being reduced under the Plan for these Title III Cases from approximately $34 billion to $7.4 billion in new debt, there are many other beneficial aspects, such as: substantial cuts to Puerto Rico’s funded debt obligations, preservation of accrued public pension benefits, funding of future pension reserves, restoration of employee retirement accounts, and resolution of a massive amount of litigation,” the government said.