Monday, June 14, 2021

PSA on Clawback Claims with Bond Insurers Concluded

By on May 6, 2021

The Financial Oversight and Management Board for Puerto Rico during a 2016 public meeting. (CB file)

Agreement Backed by Creditors Holding $2 billion in Suits Against HTA 

SAN JUAN – Puerto Rico’s Financial Oversight and Management Board (FOMB) announced late Wednesday that it concluded a plan support agreement (PSA) with, among others, Assured Guaranty Corp., Assured Guaranty Municipal Corp., and National Public Finance Guarantee Corp., in line with the terms of the agreement in principle announced on April 12 to settle their asserted clawback claims against the commonwealth.   

The PSA also provides a framework to restructure the debts of the Puerto Rico Highway and Transportation Authority (HTA) and the Puerto Rico Convention Center District Authority (CCDA), according to a press release issued by FOMB, which added that the agreement serves as “a template for treatment of other asserted clawback claims of similarly situated creditors at the Puerto Rico Infrastructure Financing Authority (PRIFA) and the Metropolitan Bus Authority (MBA).”  

The PSA is supported by creditors holding over $2 billion in claims against HTA, including more than 85% of HTA 1968 Bonds, nearly 50% of HTA 1998 Senior Bonds, and nearly 40% of CCDA Bonds.      

“This agreement is another significant step towards resolving Puerto Rico’s bankruptcy process,” FOMB Executive Director Natalie Jaresko said in a statement. “Today, we are adding another consensual agreement to the Commonwealth Plan of Adjustment and establishing a framework for HTA to exit the Title III process under [Promesa], all with considerable creditor support.”   

The agreement will be incorporated into the amended plan of adjustment (POA) the oversight board filed on March 8. FOMB said in the April 12 announcement that the agreements with the bond insurers and guarantors would not affect the commonwealth’s maximum annual debt service payments of $1.15 billion, as set forth in the filed POA, which the fiscal panel says would save as much as $3 billion each year in debt service compared to the contractual agreements prior to Promesa. 

“The Oversight Board continues its path towards consensual and sustainable debt restructurings without lengthy and costly litigation. Puerto Rico needs to move on, recover, and grow,” Jaresko affirmed. 

Clawback creditors will receive a Contingent Value Instrument (CVI) based on potential outperformance of Puerto Rico’s 5.5% Sales and Use Tax relative to projections in the 2020 Certified Fiscal Plan. These creditors sued the commonwealth government after it confiscated pledged revenues through clawbacks during the start of the default crisis in 2015. 

CCDA bondholders will receive $112 million in cash, inclusive of restriction fees and consummation costs, from accounts associated with the hotel room tax historically conditionally appropriated by commonwealth law to CCDA. This amount represents a fixed reduction of the amount of CCDA claims of approximately 70%.   

HTA bondholders will receive approximately $1.2 billion in new bonds issued by HTA and $389 million in cash, including restriction fees and consummation costs. These amounts, in aggregate, represent a fixed reduction of the amount of HTA claims of approximately 70%.  

“The terms of the PSA, together with the previously announced settlement of Employee Retirement System (ERS) bondholder claims, will be incorporated into a Third Amended Plan of Adjustment to reduce the debt of the Commonwealth of Puerto Rico to affordable and sustainable levels,” the oversight board said in the statement. “Taken together with the already completed [Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym)] debt restructuring, the Plan is expected to save the Commonwealth almost $60 billion in debt service.” 

U.S. District Court Judge Laura Taylor Swain, which is overseeing the commonwealth debt-restructuring process under Promesa, is scheduled to hold a hearing to consider the approval of the disclosure statement related to the amended POA on July 13. The disclosure statement hearing provides bondholders with details in the deal needed to understand before voting on the plan.  

“If it looks like we have a confirmable plan, then the court will schedule a confirmation hearing to hear any objections and determine if the plan meets all of the legal requirements,” FOMB Chairman David Skeel said during a press conference announcing the POA deal in February. 

Negotiations continue with general unsecured creditors and other holders of clawback claims, the oversight board said in Wednesday’s statement. 

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