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Assured Offers ‘Conditional’ Backing of New PSA

By on February 23, 2021

Insurer Seeks ‘Comprehensive Resolution of Remaining Issues’ with GO, PBA bonds 

SAN JUAN – Assured Guaranty Municipal Corp. (AGM), an insurer of Puerto Rico bond issues, said on Tuesday that it would “conditionally support” a new plan support agreement (PSA) between Puerto Rico’s Financial Oversight and Management Board (FOMB) and holders of $18.8 billion out of a total $35 billion in general obligation (GO) and Public Buildings Authority (PBA) debt. 

“Assured Guaranty has consistently supported a consensually negotiated and comprehensive approach to resolving Puerto Rico’s current financial challenges,” the bond insurer said in a statement. “It conditionally supports this agreement with the express understanding that the government parties will work with Assured Guaranty to make the agreement part of such a comprehensive solution.” 

Assured, a bond insurance subsidiary of Bermuda-based holding company Assured Guaranty Ltd, insured about $1.6 billion of commonwealth general obligation bonds and about $1.9 billion of revenue bonds issued by other entities including the Highway and Transportation Authority, the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) and the University of Puerto Rico. 

The new PSA reduces the approximately $18.8 billion of GO and GO-guaranteed liabilities by 61 percent, to $7.4 billion, resulting in an extra $2.7 billion in a principal debt cut compared to the agreement reached in February 2020. The deal reduces GO debt service payments by $4.7 billion, as well as cutting the maximum annual debt service by 22%, to $1.15 billion, relative to last year’s PSA. 

“Assured Guaranty will continue to work diligently and constructively toward a comprehensive resolution of any remaining issues with the GO and PBA bonds along with other related Puerto Rico credits, such as the Highway and Transportation Authority bonds, Convention Center District Authority bonds, and others, in a manner that respects its legal rights and achieves the ultimate goal of bringing the Title III process to a fair and expeditious conclusion,” the firm said in the statement. 

FOMB Executive Director Natalie Jaresko said Tuesday that the fiscal panel is still in negotiations with three groups of creditors — the Employees Retirement System, the unsecured creditors, and monoline clawback claimants. She declined to give details of the progress of these talks due to “mediation confidentiality.” 

“It is an absolute priority for us. We are going to still try to reach consensus with other groups of creditors,” Jaresko said during a virtual press conference announcing details of the PSA deal, which would cut Puerto Rico debt service payments by 62% compared to what they were before the commonwealth government requested bankruptcy protection under the federal Puerto Rico Oversight, Management and Economic Stability Act (Promesa).  

Assured’s statement said that the new PSA had “the tacit support of the Commonwealth of Puerto Rico,” although Gov. Pedro Pierluisi issued a statement Tuesday morning saying that the administration would not support a plan that includes an agreement between the Official Retirees Committee (COR by its Spanish acronym) and the oversight board for an 8.5 percent cut to government pensions exceeding $1,500 a month, which would affect 25% of retired public workers. Jaresko said it would file the PSA along with the COR agreement and plan of adjustment in Promesa court by March 8, the deadline set by U.S. District Court Judge Laura Taylor Swain, who oversees the island’s bankruptcy proceedings.

After the firm issued the morning press release, Assured Guaranty Ltd. (AGO) shares increased $3.89, or 9.82%, in Tuesday New York Stock trading to close at $43.50. In after-hours trading, the stock dropped 2.07% to close at $42.60. 

Meanwhile, the Ad Hoc Group of Constitutional Debtholders, Ad Hoc Group of GO Bondholders, Lawful Constitutional Debt Coalition and QTCB Noteholder Group, which collectively hold approximately $8.2 billion in GO and PBA bond claims in the deal, said in a press release that the new PSA will “help Puerto Rico continue to support its three million citizens during these difficult times while also laying the groundwork for a much brighter economic future.” 

“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 group of creditors said in a statement. “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.” 

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