June 12, 2019
By Karen Pierog
SAN JUAN (Reuters) – Puerto Rico’s federally created financial oversight board said on Wednesday it reached a deal to restructure more than $50 billion in unfunded pension liabilities that includes cuts for some of the bankrupt U.S. commonwealth’s retired government workers.
The tentative agreement with a federal court-appointed committee representing more than 167,000 retirees, which the government opposes, helps pave the way for a plan to restructure Puerto Rico’s core government debt.
Puerto Rico has been in U.S. District Court since 2017 in order to address about $120 billion of debt and pension obligations.
The board called the deal “an integral part” of the upcoming plan of adjustment, which a spokesman said could be finished by the end of this month.
“Today we reach another milestone that will enable Puerto Rico to emerge from bankruptcy and make it easier for businesses to invest, for our economy to grow, and for the people of Puerto Rico to prosper,” Jose Carrión, oversight board chairman, said in a statement.
Under the deal, there would be no pension reductions for 61% of the retirees or more than 102,000 people, while cuts to monthly pensions totaling more than $1,200 would be capped at 8.5%, according to the retirees committee.
After running out of money, Puerto Rico has been funding its retirement systems on a pay-go basis. The agreement calls for the creation of a potentially multibillion-dollar pension reserve to help fund pension payments in later years when Puerto Rico is projected to have operating deficits.
“After almost two years of legal actions, mediation sessions and negotiations we reached an agreement with the (oversight board) that will significantly limit pension cuts and provide other substantial protections,” Miguel Fabre, a former judge who chairs the retirees committee, said in a statement.
Christian Sobrino Vega, executive director of Puerto Rico’s Financial Advisory & Fiscal Agency Authority, said the deal goes against the government’s public policy of no cuts to pensions.
“Our position is, and will continue to be, zero cuts to pensions and we have the legal and fiscal mechanisms to do so,” he said in a statement.
Meanwhile, the board and other island creditors are contesting the validity of billions of dollars of Puerto Rico bonds they contend were sold in violation of a debt limit in the commonwealth’s constitution.
Restructurings have been finalized for the island’s sales tax-backed debt and for its Government Development Bank.
(Reporting by Karen Pierog in Chicago; Additional reporting by Luis Valentin Ortiz in San Juan; Editing by Matthew Lewis)