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Oversight Board Files 6th Amended Plan of Adjustment

By on July 27, 2021

SAN JUAN – Puerto Rico’s Financial Oversight and Management Board (FOMB) announced Tuesday that it had filed a sixth amended commonwealth Plan of Adjustment (POA) that reflects new agreements with bond insurers Ambac Financial Group and Financial Guaranty Insurance Company (FGIC).

The deals settle both insurers’ asserted clawback claims against the government of Puerto Rico and debts issued by the Puerto Rico Infrastructure Financing Authority (PRIFA).

“With this sixth amended Plan of Adjustment, the Oversight Board has reached agreements with all monoline bond insurance companies involved in the Commonwealth Plan of Adjustment,” FOMB Executive Director Natalie Jaresko said in a press release. “The agreement to settle the PRIFA claims provides additional support to the Plan of Adjustment before confirmation hearings and brings Puerto Rico another step closer to the end of its bankruptcy.”

PRIFA bondholders will receive $260 million in cash, including restriction fees and consummation costs. In addition, the agreement includes a contingent value instrument based on potential outperformance of Puerto Rico’s 5.5% sales and use tax relative to projections in the 2020 certified fiscal plan and Puerto Rico’s general fund rum tax collections relative to projections in the 2021 certified fiscal plan.

“Cash consideration to all PRIFA claims reflects a fixed reduction of the amount of PRIFA claims of approximately 90%,” the release reads.

On July 14, U.S. District Court Judge Laura Taylor Swain issued a preliminary ruling rejecting creditor objections to the disclosure statement detailing the amended POA, but delaying a final approval until the fiscal panel and insurers concluded negotiations. The virtual continued omnibus hearing to discuss the matter was to be held on Tuesday, but Judge Swain ruled in favor of an urgent motion filed by FOMB to delay it until Thursday, beginning at 10:30 a.m.

The court will hear the continued oral arguments in favor and against the disclosure statement, determining if the document provides accurate information to 66 classes of creditors, retirees, public employees, contractors and other parties who will be affected by the POA, which includes an 8.5 percent cut to monthly retirement payments of over $1,500 a month.

The final approval of the disclosure statement would open the path to confirmation of the plan to restructure $35 billion in commonwealth general obligation (GO) and Public Buildings Administration (PBA) debt and $50 billion in pension liabilities – a key step for Puerto Rico to exit bankruptcy. The amended joint motion including the POA includes fixing the creditor voting dates, approving confirmation hearing notice and confirmation schedule, approving forms of ballots, and voting and election procedures, and approving notice of non-voting status.

Judge Swain issued a July 16 order directing the oversight board to amend the disclosure statement to inform creditors of the risks associated with the fiscal panel’s failure to obtain legislative approval for each measure required by the POA. She also ordered the disclosure of “real properties owned by the Commonwealth of Puerto Rico and its entities, and that creditors intend to raise the issue at plan confirmation of whether such properties should be monetized pursuant to the Fiscal Plan Compliance Act and, if they are monetized, whether proceed of such properties should be made available to pay creditors.”

Judge Swain also ruled that the disclosure statement must state that “neither the Oversight Board nor the government of the commonwealth of Puerto Rico will vouch for the accuracy” of government data. Moreover, she said that “the potential risks and costs associated with issuance under the proposed plan of adjustment of multiple kinds of bonds to each holder of bond claims in respect to their current holdings.”

The document must include “the tax characteristics and tax consequences of the bonds to be issued under the plan of adjustment, to the extent such information is available,” Judge Swain ordered.

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