Puerto Rico's oversight board reached an agreement with bondholders to restructure $35 billion in debt, the Financial Oversight and Management Board for Puerto Rico announced Sunday.
The agreement, expected to be filed within 30 days, will reduce the amount of outstanding bonds by more than 60%, to less than $12 billion, and cut the commonwealth's debt service, including principal and interest, to $21 billion from $43 billion.
Oversight board officials said the agreement is an acknowledgment by bondholders and other parties that restructuring the debt is key to having a plan of adjustment that would allow Puerto Rico to emerge from bankruptcy early next year.
The bondholder agreement provides more than a 60% average haircut for all $35 billion claims against the commonwealth. Holders of general obligation bonds will take a 36% cut, and those holding Public Building Authority bonds will see a 27% cut.
On June 12, the oversight board announced an agreement with a retirees' group to resolve $55 billion in pension benefit claims as part of the adjustment plan. The Official Committee of Retired Employees of the Government of Puerto Rico, whose Spanish acronym is COR, represents more than 167,000 government retirees from the Employees Retirement System of the Government of Puerto Rico, the Teachers Retirement System and the Judiciary Retirement System. The agreement calls for no cuts for retirees with monthly pension benefits below $1,200, roughly 61% of current retirees. Retirees with higher pension benefits will see cuts of no more than 8.5%.
Eric LeCompte, executive director of the religious development group Jubilee USA Network that is advocating for pension recipients, welcomed the agreement. He said was the first time in any debt restructuring for a U.S. city or territory that pensions were protected.
The agreements with bondholders and the retirees group are milestones that will give investors confidence that Puerto Rico has turned the corner on its financial crisis, oversight board Chairman Jose B. Carrion III said in the news release.
In February, the board reached a restructuring agreement with bondholders of the Puerto Rico Sales Tax Financing Corp., known as COFINA, to reduce the maximum annual debt service by more than 70%.