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Puerto Rico financial oversight board lands deal with junior creditors

6 minute read

Signage is seen at the United States Bankruptcy Court for the Southern District of New York in Manhattan, New York City, U.S., August 24, 2020. REUTERS/Andrew Kelly

  • Unsecured creditors to see $575 million payout
  • Talks with bond insurers ongoing
  • Key hearing to resume Wednesday

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(Reuters) - The federally appointed board tasked with guiding Puerto Rico's debt restructuring has reached a deal that garners support from a group of junior creditors for its proposed debt adjustment plan.

A lawyer for the Financial Oversight and Management Board, Brian Rosen of Proskauer Rose, announced the agreement during a virtual hearing on Tuesday before U.S. District Judge Laura Taylor Swain, who is overseeing the commonwealth’s bankruptcy-like proceedings in San Juan. The accord is a key step toward Puerto Rico’s ability to exit its so-called Title III debt restructuring process, which is now four years old.

The agreement boosts the unsecured creditors’ payouts to $575 million, from $125 million previously, according to Rosen.

The deal was disclosed during Tuesday’s hearing on the financial oversight board's request to begin soliciting creditor votes for its proposed plan. A lawyer for the unsecured creditors’ committee, Luc Despins of Paul Hastings, confirmed during the hearing that his group has dropped its prior opposition to the vote solicitation.

The committee support is a notable step forward for the board, which is hoping it can corral the support it needs to conclude the commonwealth’s lengthy restructuring this year. The proposed plan would reduce Puerto Rico’s $35 billion in public debt to $7.4 billion and restructure more than $50 billion in pension liabilities. The proposal has support among several groups of bondholders but still faces opposition from bond insurers Ambac Assurance Corp and Financial Guaranty Insurance Co, the Puerto Rican government, as well as some retail investors and individual citizens.

Negotiations among the Financial Oversight and Management Board, Ambac and FGIC are ongoing and could result in a deal this evening, lawyers for the board and the bond insurers said on Tuesday.

The commonwealth sought relief in 2017 under the Puerto Rico Oversight, Management, and Economic Stability Act, which was created to provide the territory – which is not eligible to file for traditional U.S. bankruptcy protection – a means of restructuring its $120 billion debt load.

A lawyer for Puerto Rico’s Fiscal Agency and Financial Advisory Authority, John Rapisardi of O’Melveny & Myers, said on Tuesday that the government remains opposed to proposed pension cuts embedded in the debt adjustment plan.

Earlier this month, the financial oversight board sued Governor Pedro Pierluisi and other top government officials to block a new law it says would interfere with the pension restructuring.

“I hope and pray this is not resolved through more litigation and delay but is overcome through consensus,” Rapisardi said during the hearing.

The entity tasked with issuing new bonds to restructure debts of the Government Development Bank for Puerto Rico, known as the GDB Debt Recovery Authority, also raised issues with the proposed plan. Douglas Mintz of Schulte Roth & Zabel, representing the entity’s collateral monitor, said on Tuesday that the plan cannot be approved because it attempts to use $264 million in assets belonging to the Highways and Transportation Authority to pay off certain bondholder claims ahead of the DRA’s HTA loans. The HTA is undergoing its own Title III proceeding and has not yet proposed its own debt adjustment plan.

The hearing on the solicitation of creditor votes for the plan, which can only begin once Swain determines the board has made adequate disclosures to inform creditors of the details of the plan, will resume on Wednesday morning.

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 the unsecured creditors' committee: Luc Despins and Alexander Bongartz of Paul Hastings; and Juan Casillas-Ayala, Israel Fernandez-Rodriguez, Juan Nieves-Gonzalez and Cristina Fernandez-Niggemann of Casillas Santiago & Torres

For the financial authority: Peter Friedman, John Rapisardi, Maria DiConza and Matthew Kremer of O’Melveny & Myers; and Luis Marini-Biaggi and Carolina Velaz Rivero of Marini Pietrantoni Muniz

For the DRA: Douglas Mintz, Douglas Koff, Abbey Walsh and Peter Amend of Schulte Roth & Zabel; Carmen Conde-Torres of C. Conde & Associates; and Arturo Garcia-Sola and Nayuan Zouairabani-Trinidad of McConnell Valdes

Read more:

Puerto Rico debt proposal disclosures will go up for court approval in July

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

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

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