After weeks of intense negotiations between legislators, creditors and the Puerto Rico Oversight Board, the board officially filed an
It sets the stage for negotiations during the Confirmation Hearing that is scheduled to start Monday.
As a result of negotiations with the local government and due to the local government’s passage of Act 53, the board filed a new plan late Wednesday that has no cuts to benefits to current retirees. Puerto Rico Act 53 authorizes the new bonds that are key to keeping the plan alive only if the board agrees to eliminate these benefit cuts.
In addition to eliminating the benefit cuts, the new Plan of Adjustment includes more generous terms for funding the Pension Reserve Trust. The board’s April fiscal plan for Puerto Rico declined to calculate the cost of the trust, noting the “contingent nature” of the funding formula. In a declaration filed Tuesday with the court, Board Executive Director Natalie Jaresko said she expected funding for the trust to total $2.4 billion over the next 10 fiscal years.
“The agreement with the legislature and the governor over pensions and the intent to put a greater percentage of any projected primary surplus into the Pension Reserve Trust places the Plan of Adjustment on an even more solid foundation ahead of the confirmation hearing next week,” Jaresko said.
Jaresko projected the cost of extending the no-cut provision to all current pensioners from those receiving less than $1,500 per month, found in the previous plan, to be $1.9 billion over 30 years.
Due to the elimination of the cut to current retirees, over the next 10 years the monthly benefit modification would amount to an average cost of $87 million a year, or less than 1% of the overall Commonwealth of Puerto Rico budget for the 10-year period.
The previous version of the plan would have protected 72% of current retirees from cuts to their benefits.
“The Pension Reserve Trust is an important tool in the plan to reduce the risk that the Commonwealth will be unable to satisfy pension payment obligations in future years, whether due to unexpected crises, or a failure to exercise fiscal responsibility, or both,” Jaresko said in her filing to the court.
It is unclear whether the new Plan of Adjustment will lead to a new round of voting. Tabulation of votes on the preceding plan was scheduled to be completed Wednesday.
The board and others may argue no new voting is needed because the new plan only includes better terms for certain classes of creditors (the pensioners).
On Monday Puerto Rico bondholder Peter Hein said he thought the new plan and the board’s efforts to get the judge to rule on the meaning of Act 53 would affect retail bondholders and they should have the right to vote on new plan.
