Puerto Rico has announced it will restructure debts after the commonwealth exited bankruptcy.
According to Financial Oversight and Management Board for Puerto Rico (FOMB), the debt restructuring will pave the way for new bonds with its creditors.
The debt restructuring plan included a decrease of $4.8 billion in debt service payment, a limitation of debt maturity to 20 years instead of 30, and an increase of creditor support from approximately $3 billion to $8 billion.
“The plan shall provide bondholders and creditors with blended overall recoveries on $35 billion of Commonwealth claims of 41.3% (excluding recoveries from non-tax supported entities),” FOMB reported.
Despite the debt restructuring, FOMB claimed it will ensure the pension of Puerto Rican retirees. FOMB’s Plan Support Agreement will establish a pension reserve fund from the government’s cash surpluses.
“Importantly, the Plan avoids the pitfall of cutting public sector pensions and provides for the creation of a pension reserve trust to collateralize the Territory’s future pension obligations, thus providing additional protection in case of future financial difficulties,” said Puerto Rico Governor Pedro R. Pierluisi.
Heriberto Martinez Otero, Executive Director of Ways and Means of House of Representatives in Puerto Rico, said that teachers who have entered into service before 2014 and have not yet retired will enter into a defined contribution system.
U.S. District Judge Laura Taylor Swain approved Puerto Rico’s debt restructuring in January 2022, marking the end of Puerto Rico’s almost five years of bankruptcy. The plan of adjustment will reduce Puerto Rico’s debts by 78% lowering the $34 billion to $7.4 billion, said Puerto Rico Governor Pedro R. Pierluisi.
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