Puerto Rico board finalizes deal securing bond insurers' support for debt plan

Demonstrators rally to cancel Puerto Rico's debt outside United States Court in the Manhattan borough of New York City
REUTERS/Shannon Stapleton
  • Ambac and FGIC, longtime holdouts, to back restructuring plan
  • Infrastructure bond holders to get $260 million in cash
  • Judge to consider final ruling on plan voting kickoff Thursday

(Reuters) - The federally appointed financial oversight board tasked with guiding Puerto Rico’s debt restructuring has finalized a deal with two key creditors, adding to growing support for the proposed plan to fix the commonwealth’s debt crisis.

The oversight board, represented by Proskauer Rose, announced its pact with bond insurers Ambac Financial Group and Financial Guaranty Insurance Company in a statement on Tuesday. The settlement resolves the bond insurers’ litigation over rights to certain revenues and sets aside $260 million for holders of debt issued by the Puerto Rico Infrastructure Financing Authority (PRIFA).

Puerto Rico filed for its bankruptcy-like court proceeding, known as a Title III case, in May 2017 to address its approximately $120 billion in public debt and pension liabilities. In recent months, the board has struck deals with a variety of powerful creditor groups that should help it conclude the Title III proceedings by the end of the year.

Under the proposed debt adjustment plan, Puerto Rico’s $35 billion in public debt would be reduced to $7.4 billion and more than $50 billion in pension liabilities would be restructured. The proposal has support from several groups of bondholders and other creditors but still faces opposition from the Puerto Rican government, as well as some retail investors and individual citizens.

Ambac, represented by Milbank, and FGIC, represented by Butler Snow, insure hundreds of millions of dollars in PRIFA bonds, which the authority stopped paying in 2015. Under the agreement announced Tuesday, PRIFA bondholders will collect $260 million in cash – a 90% discount to PRIFA claims, according to the board’s statement. Of that amount, Ambac will receive $34.75 million and FGIC will receive $21.75 million, according to court papers.

At the request of the board, U.S. District Judge Laura Taylor Swain, who sits on both the Manhattan and San Juan federal courts, postponed the continuation of a July 13 hearing that was scheduled to occur on Tuesday on soliciting creditor votes. The hearing is now set for Thursday.

At the July 13 hearing, a lawyer for the board had told Swain that it had reached a tentative deal with Ambac and FGIC. Tuesday’s statement confirms the settlement. The judge overruled some objections to the proposed solicitation at that hearing but said she would wait to issue a final ruling until the Ambac and FGIC agreement was finalized.

Despite the increasing support from creditors for the oversight board’s debt restructuring, Puerto Rico’s government remains opposed to proposed pension cuts tied to the plan. The board sued the government in early July to block legislation that it says would reintroduce expensive pension obligations that the plan is specifically trying to address.

The case is In re Commonwealth of Puerto Rico, U.S. District Court, District of Puerto Rico, No. 17-03283.

For the oversight board: Martin Bienenstock, Brian Rosen, Mark Harris, Ehud Barak, Timothy Mungovan, John Roberts and Margaret Dale of Proskauer Rose; and Hermann Bauer-Alvarez of O'Neill & Borges

For Ambac: Atara Miller, Dennis Dunne, Grant Mainland, John Hughes III and Jonathan Ohring of Milbank and Roberto Camara-Fuertes of Ferraiuoli LLC

For FGIC: Martin Sosland, James Bailey III and Adam Langley of Butler Snow and Maria Pico of Rexach & Pico

Read more:

Puerto Rico nets 'verbal' deal with bond insurers as legal fees near $1 billion

Puerto Rico financial oversight board lands deal with junior creditors

Deal reached to cut Puerto Rico bond debt, pensions a sticking point

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.