Municipal market participants question the wisdom of executing Puerto Rico’s bankruptcy without local legislative approval for new bonds and instead relying on court-approved debt, as the Oversight Board is exploring.
New bonds are key to Puerto Rico’s exit from bankruptcy, as are cuts to Puerto Rico’s three main pension systems: the Employees Retirement System, Judicial Retirement System, and Teachers Retirement System, to which the legislature and Gov. Pedro Pierluisi are adamantly opposed. The Puerto Rico Senate and House of Representatives have voted overwhelmingly to not approve any bonds for a Plan of Adjustment that cut pensions and passed a law prohibiting such cuts.
The board has taken the position that pension cuts — proposed now at 8.5% for pension payments of more than $1,500 per month — are key to a fair bankruptcy resolution as pensions make up $48.7 billion of Puerto Rico’s hefty $112.7 billion of debt and pension liabilities. In nearly every municipal bankruptcy case, pension cuts have been made.