Puerto Rico’s senior creditors agree to new bankruptcy exit plan

By Sarah Lizee

Olympia, Wash., Feb. 23 – Major holders of the Commonwealth of Puerto Rico’s public buildings authority (PBA) bonds reached an agreement with the Financial Oversight and Management Board on a new plan support agreement that will restructure roughly $18.8 billion of general obligation and G.O.-guaranteed liabilities, according to a press release issued Tuesday.

The new plan support agreement builds on the previous February 2020 plan support agreement by providing additional benefits and enhanced flexibility to the commonwealth in light of the Covid-19 pandemic.

“Since the onset of the Covid-19 pandemic, major creditors have engaged in good faith with the oversight board in order to provide Puerto Rico with the financial flexibility it needs to recover from this unprecedented public health crisis,” the creditor groups, which collectively hold about $8.2 billion in G.O. and PBA bond claims, said in the release.

“The new PSA delivers that important flexibility by creating a reduced debt repayment schedule and introducing a number of meaningful creditor concessions.

“This widely supported compromise will help Puerto Rico avert years of costly, distracting litigation and finally expedite the island’s long-awaited exit from bankruptcy in 2021.”

The new plan service agreement reduces around $18.8 billion of G.O. and G.O.-guaranteed liabilities to about $7.4 billion, resulting in an extra $2.7 billion in principal debt reduction compared to the February 2020 agreement.

It also reduces debt service payments on G.O. and G.O.-guaranteed debt by $4.7 billion relative to the February 2020 agreement.

The terms also cut the commonwealth’s maximum annual debt service to $1.15 billion, which is 22% lower than the cap included in the February 2020 agreement.

Creditors have agreed to assume more risk and further align themselves with Puerto Rico’s revitalization by taking a portion of their recovery in a contingent value instrument that only pays out if the commonwealth’s economy outperforms the May 2020 certified fiscal plan.

Newly issued securities will be G.O.-only, with no inclusion of the Cofina junior-lien bonds contemplated within the February 2020 agreement.

The commonwealth’s maximum annual debt service will be reduced to $1.15 billion from $1.47 billion, with the debt service, excluding existing Cofina senior-lien bonds, contemplated in the new plan representing just 3% of the commonwealth’s fiscal year 2021 budget.

The commonwealth and its instrumentalities will retain more than $13 billion in cash upon confirmation and consummation of the new plan.

As of Feb. 21, the new plan is supported by holders of more than $11 billion of G.O. and PBA bond claims, according to the news release.

The Commonwealth of Puerto Rico announced its Title III petition filing on May 3, 2017. The case number is 17-03283.

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