Puerto Rico governor rejects key deal with creditors to reduce debt due to pension cuts

Puerto Rico’s governor introduced Tuesday {that a} federal management board reached a key deal that might reduce the U.S. territory’s total debt by almost 80 %, however that his administration is rejecting it as a result of it might require cuts to the island’s crumbling public pension system.

The deadlock between the governor and a board that oversees Puerto Rico’s funds threatens to throw into limbo makes an attempt to finish a bankruptcy-like course of for a authorities that six years in the past declared unpayable its greater than $70 billion public debt load.

The deal was reached with creditors who maintain normal obligation bonds and Public Building Authority bonds bought by Puerto Rico’s authorities and would resolve $35 billion price of debt and non-debt claims, in accordance to the board. It additionally would reduce debt held by these creditors from $18.8 billion to $7.4 billion, a 61 % discount, and would offer them with $7.4 billion in bonds and $7 billion in money, amongst different issues.

The board mentioned the deal would unlock greater than $300 million a 12 months for presidency companies, and that as an alternative of 30 cents for each greenback in taxes and charges that Puerto Rico’s authorities collects going to creditors, it might be lower than 8 cents.

“I firmly believe this is the best outcome we could achieve in today’s economic uncertainty, not only for the people of Puerto Rico but also for creditors who have an interest in Puerto Rico’s long-term viability and creditworthiness,” mentioned board chairman David Skeel.

Gov. Pedro Pierluisi, nevertheless, disagrees.

He mentioned in an announcement that whereas the settlement is optimistic in some ways for Puerto Rico, his administration doesn’t again the deal that’s scheduled to be submitted in court docket subsequent month and requires ultimate approval from a federal decide overseeing the bankruptcy-like course of.

“The plan of adjustment should not be structured in a way that affects our pensioners even more,” he mentioned.

Pierluisi added that finalizing the restructuring of a portion of Puerto Rico’s debt is a precedence for his administration, however not on the expense of retirees: “Putting the bankruptcy process behind us is a fundamental step toward the recovery and economic development of our island.”

Puerto Rico accrued the debt after many years of mismanagement, corruption and extreme borrowing to steadiness budgets. A former governor declared it unpayable in 2015 after which two years later, the federal government filed for the most important U.S. municipal chapter in historical past.

Officials at the moment are restructuring a portion of that debt amid an almost 15-year financial disaster that deepened after Hurricane Maria, a string of sturdy earthquakes that hit a 12 months in the past and the continued pandemic.

The creditor teams concerned within the deal maintain greater than $11 billion price of bonds. Those who maintain greater than $8 billion of these bonds mentioned they’ve engaged in good religion with the board to present Puerto Rico with the monetary flexibility it wants to recuperate from the pandemic.

“This widely-supported compromise will help Puerto Rico avert years of costly, distracting litigation and finally expedite the island’s long-awaited exit from bankruptcy in 2021,” they mentioned in an announcement.

The board mentioned mediation continues with creditors that maintain different sorts of bonds, together with Employee Retirement System ones.

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