Oversight Board Reaches New, More Favorable Agreement to Restructure $35 Billion of Liabilities.
Reduces Debt Service by an additional $5 Billion and Shortens Repayment Period to 20 Years; Significant Support from Bondholders
San Juan, PR – February 9, 2020 – The Financial Oversight and Management Board for Puerto Rico announced today that it reached an agreement with certain bondholders of the Commonwealth of Puerto Rico on a substantially enhanced framework for a Plan of Adjustment to resolve $35 billion of debt and non-debt claims.
The new agreement reduces the Commonwealth’s debt service (including principal and interest from the COFINA Senior Lien bonds) by 56%, to $39.7 billion from $90.4 billion. Relative to the previous Plan Support Agreement the Oversight Board reached with a smaller group of bondholders last year, this agreement reduces total debt service by an additional $5 billion. Under the new agreement, Puerto Rico would completely resolve its legacy debt in 20 years, 10 years sooner than under the previous agreement.
“The new and more favorable agreement is a win for Puerto Rico,” said the Oversight Board’s Chairman José Carrión. “It lowers total debt payments relative to the agreement we reached last year, pays off Commonwealth debt sooner, and has significantly more support from bondholders, further facilitating Puerto Rico’s exit from the bankruptcy that has stretched over three years.”
The new agreement reduces $35 billion of debt and other liabilities by 70%, or $24 billion, to less than $11 billion, an additional $1 billion reduction relative to the previous agreement. Holders of $8 billion of bonds support the agreement, including Puerto Rican credit unions and traditional municipal investors. This support increases the Oversight Board’s ability to move forward towards exiting bankruptcy this year. The previous agreement was terminated.
“The new agreement is another step forward for Puerto Rico, one that gets the island much closer to ending bankruptcy and to the beginning of a true economic recovery,” said the Oversight Board’s Executive Director Natalie Jaresko. “Bankruptcy is holding Puerto Rico back. We need to resolve it and with this agreement, Puerto Rico will resolve it faster, protecting the pensions of retirees and the government services the people of Puerto Rico need and deserve as specified in the Oversight Board’s certified Fiscal Plan and budget.”
The new agreement provides a 29% average reduction for general obligation (GO) bondholders and a 23% average reduction for holders of Puerto Rico Public Buildings Authority (PBA) bonds. Commonwealth creditors would receive $10.7 billion in new debt, half in GO bonds and half in COFINA Junior Lien bonds, as well as $3.8 billion in cash.
The new agreement, which was approved by the majority of the members of the Oversight Board, reduces the Commonwealth’s maximum annual debt service payable in any future year, including COFINA Senior Lien bonds, by more than 70%, from $4.2 billion annually to a sustainable level of below $1.5 billion a year.
The Oversight Board agreed to settle its challenge of $6 billion of bonds that the Oversight Board contends exceeded the Commonwealth debt limit. The settlement allows the Oversight Board to eliminate the risk of a costly and time-consuming legal battle. The Oversight Board will continue to challenge other bond issuances, including bonds issued by the Employee Retirement System, as well as seek recovery of fees earned by the banks, law firms and other parties earned when they helped issue bonds in excess of Puerto Rico’s constitutional debt limit.
For more information on the agreement, please visit the Oversight Board’s web site at https://oversightboard.pr.gov/documents/