It is Time to Leave Bankruptcy Behind

Op-Ed By The Chairman Of The Oversight Board: David A. Skeel, Jr.

This column was originally published in Spanish by El Nuevo Día on November 7, 2021

We are closer than we have ever been to ending bankruptcy and turning Puerto Rico’s recovery into real, sustainable economic growth. The Plan of Adjustment we proposed to the court for confirmation will lower the Commonwealth’s debt by almost 80% and will save Puerto Rican taxpayers more than $50 billion in payments to creditors.

Puerto Rico now has a path to recovery. There is no doubt that ending this chapter would be a remarkable step for Puerto Rico, especially if it leads to a substantial cut in future payments to creditors, clears the path to access the financial markets, and ensures future governments will not repeat the same practices that led to this bankruptcy.

How did we get to this turning point in Puerto Rico’s painful debt crisis? We, the Oversight Board, negotiated, haggled, pushed, and, in the end, convinced an extraordinarily large number of creditors including investment funds and bond insurance companies to accept significant concessions that will lift this burden off Puerto Rico’s future generations. We also gained the support of the Public Servants United of Puerto Rico (SPU)/AFSCME Council 95.

This process, defined by PROMESA, is the only feasible way out of Puerto Rico’s bankruptcy, and we are almost there. The Legislature and the Governor, which has proven itself to be as tough a negotiator as the Oversight Board itself, has done its part with Act 53-2021 to allow Puerto Rico to move forward with the Plan of Adjustment’s confirmation process. The court hearing starting on Monday will allow all – creditors and the general public alike – to express their views before Judge Laura Taylor Swain hopefully confirms the plan before the end of the year.
Why am I so convinced that this is a good Plan for Puerto Rico? It is a good Plan because it gets Puerto Rico out of bankruptcy, but it is also a good plan because it provides every Puerto Rican with significant benefits. Here are eight of those benefits:

The Plan drastically reduces the government’s debt payments. Before Promesa, Puerto Rico had to pay 25 cents of every dollar it collected in taxes and fees from its residents to creditors; the Plan will cut that to 7.2 cents.

The Plan restores up to $1.5 billion to government employees for lost contributions to System 2000.

The Plan established a Pension Reserve Trust, funded for a decade with at least $175 million each year to create a piggy bank for retirees so they get their pension even in difficult economic times.

The Plan cuts the claims by bondholders and other creditors by more than 40%, on average, and still ensures that the government gets to keep almost $20 billion in cash for day-to-day and emergency expenses.

For government retirees, Puerto Rico’s largest creditor group, the Plan ensures the best possible treatment: no cut at all.

The Plan provides a path for Puerto Rico to regain access to capital markets. Every government needs access to capital markets so it can raise the funds needed to finance large infrastructure improvement projects that are part of the foundation of economic development and quality of life.

The Plan of Adjustment includes a Debt Management Policy that establishes rules under which the government can borrow in the future, how much it can borrow, and for what it can use borrowed monies.

The Plan would finally settle hundreds of lawsuits costing the government tens of millions of dollars in legal fees alone.

We know that there continue to be objections to the Plan, but we believe this to be affordable. The Plan ensures the government would pay no more than $1.15 billion a year to repay the significantly reduced debt, including payments on the COFINA debt, rather than up to $3.9 billion of contractual debt payments without the debt restructuring.

We firmly believe that if this Plan is certified, Puerto Rico will have a very bright future where it can reach its full potential to benefit all Puerto Ricans and become the jewel of the Caribbean again.

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