Puerto Rico Gov. Wanda Vázquez Garced on Wednesday filed an objection to a central government debt-restructuring plan.
Technically, Puerto Rico’s Fiscal Agency and Financial Advisory Authority filed the objection on its behalf and on behalf of Vázquez Garced and her government. And technically, FAFAA’s objection wasn’t to the plan but to scheduling a disclosure statement hearing for the plan and a motion to establish pre-solicitation procedures. However, these two steps were part of the process to approve the plan over a nine-month period.
“The elected government of Puerto Rico does not support a plan based on the [February] Plan Support Agreement because the government has concluded that the current terms — standing alone — are not in the best interests of the people of Puerto Rico,” the authority’s lawyers said. “And, without government support for the PSA and Amended Plan [of Adjustment], the Amended Plan cannon become a reality.”
The Puerto Rico Oversight Board released the terms of a revised Plan Support Agreement on Feb. 9. It had the support of the board, an array of investment firms, and a few local credit unions.
After the board released an initial plan with different terms in September, Vázquez Garced indicated that if the board improved any terms for the bondholders it would also have to improve pensioner terms.
The February plan improves the terms for bondholders but not for the pensioners, she said. Thus, the governor has decided to oppose it, the filing said.
“The Oversight Board now seeks to prematurely begin a costly and time-consuming confirmation process on an amended plan (which has not yet been filed) that is simply not feasible without government support,” the FAFAA stated. “Unless the Oversight Board clearly articulates how it proposes to confirm the amended plan without government support and cooperation, any confirmation schedule is patently premature.”
FAFAA said the legislature would have to support any new bonds authorized by the restructuring deal.
Chapman Strategic Advisors Managing Director James Spiotto said that the Puerto Rico Oversight, Management, and Economic Stability Act doesn’t give the board the power to legislate and issue the new bonds. The bankruptcy judge also doesn’t have the power to order the issuance of new bonds.
In other developments concerning the central government debt, on Feb. 5 the Ad Hoc Group of General Obligation Bondholders, Ad Hoc Group of Constitutional Debtholders, Assured Guaranty Corp, Assured Guaranty Municipal Corp., and Invesco Funds filed a motion to dismiss the board’s and the Unsecured Creditors Committee’s challenges to late vintage GO and Public Building Authority bonds. Spiotto said he believed that the litigants were on solid legal ground.
Spiotto said the same thing needs to be done to advance a negotiated solution and to deal with the bondholders’ protection of their rights on the late-vintage bonds — the board, the governor, legislative representatives, and bondholders all need to gather for negotiations. The alternative would be for legal wrangling over restructuring the central government debt to continue for quite a while and this would be quite costly for all.