Puerto Rico’s government passed a law it claims supports the proposed Plan of Adjustment in the commonwealth’s bankruptcy case.
Gov. Pedro Pierluisi signed the bill into law Tuesday night.
It is unclear if the Puerto Rico Oversight Board will accept the law and, if the board rejects it, what the board’s next step would be.
The entire bankruptcy process threatened to unravel after the territory’s Senate blocked bond and bankruptcy legislation that had cleared the House and had Oversight Board approval.
The board has been seeking a law that would issue new bonds and Contingent Value Instruments connected with the adjustment plan to exit the bankruptcy process.
Some bondholders have said the board must have this locally approved law to fulfill a provision of the Plan Support Agreement underlying the Plan of Adjustment. They have also sought bond authorization from the legislature so the bonds would have some credibility on the secondary market.
Late on Tuesday the Puerto Rico Senate passed House Bill 1003 14-13 and the House of Representatives voted 34 in favor, 12 against, two abstaining, with three not voting.
“The Oversight Board has communicated clearly what terms would be acceptable for the legislation needed to provide for the issuance of the new general obligation bonds as part of the Seventh Amended Plan of Adjustment,” he board said in a statement. “The Oversight Board will evaluate the passed legislation carefully to determine whether it enables confirmation of the Plan of Adjustment.”
After signing the bill Pierluisi said, “Despite great stumbling blocks, today we have taken a big step forward to end bankruptcy and leave the Oversight Board. That is why we do not give up in our struggles to defend the pensions of our retirees, to provide the funds that our university needs, and to guarantee that our municipalities can serve their people.
“There is a long way to go and I have no doubt that we are heading in the right direction,” the governor said. “We will continue fighting until we manage to restructure the debt, make our economic development viable, and improve the quality of life of our people.”
To gain approval from territory’s government, the Oversight Board made concessions that would allow additional money to flow to the University of Puerto Rico, municipal governments, and to not cut the nominal benefits of current retirees.
The board’s lawyer and executive director said Monday morning the legislature’s planned changes to the bill’s language on pensions were unacceptable. The bill’s language may have changed since Monday morning.
If the board rejects the current law, it could again ask the local government to pass a different bill. Alternately, on Nov. 4 it could tell bankruptcy Judge Laura Taylor Swain that it will withdraw its proposed Plan of Adjustment.
At that point it would probably outline steps towards negotiating a new plan, one probably not dependent on the commonwealth’s government passing a law authorizing new bonds.