June 29, 2018 / 11:24 PM / a year ago

Puerto Rico oversight board certifies new plan, less money for debt

SAN JUAN (Reuters) - Puerto Rico will have significantly less money available for debt service because of the government’s failure to enact labor reform, the federally appointed financial oversight board charged with overseeing the island’s finances said on Friday.

The Financial Oversight and Management Board for Puerto Rico certified a new version of the island’s fiscal plan that includes the elimination of Christmas bonuses to public employees, as well as budgetary cuts to public agencies, the Legislature and the Judiciary, among other measures.

“The Legislature failed to pass the most important component of the Labor Reform Package — the repeal of Law 80 and turning Puerto Rico into an at-will employment jurisdiction — as required by the New Fiscal Plan,” the board said in a letter to Governor Ricardo Rossello.

Natalie Jaresko, the board’s executive director, highlighted during a press conference in San Juan that the certified plan leaves out public sector layoffs or a furlough program.

Under the new plan, money that is available to the government over the next 30 years, including for debt service, is cut to roughly $14 billion from almost $40 billion under the previous version of the fiscal plan. That is a direct result, Jaresko said, of the failure to enact labor reforms.

“It is less opportunity and revenues for the future, for purposes of one of the critical roles of the board, which is working on a successful restructuring in a responsible manner of Puerto Rico’s obligations to all its creditors, including pensioners,” board member Ana Matosantos told reporters.

She added that while board members were disappointed there was no labor reform - as previously agreed upon in May - “we recognize that fact does not change our charge or Puerto Rico’s reality.”

The Legislature was slated on Friday to approve a budget for the government’s new fiscal year, which begins July 1. Majority lawmakers anticipated that the budget to be approved will not comply with the fiscal plan certified by the board earlier in the day.

Board Chairman José Carrión told reporters the fiscal panel will wait for the Legislature to submit its approved budget, but stands ready to certify the board’s own version if lawmakers fail to come up with a budget in line with the most recent fiscal plan. Both the board and the Puerto Rico government have warned that they are ready to go to court, if necessary, to hash out their differences over the implementation of the budget and new fiscal plan.

Separately, a group of Puerto Rico’s bondholders released details of their negotiations for splitting up more than $13 billion of revenues to service their holdings of senior and subordinated sales tax-backed debt, also referred to as COFINA debt.

Settling their dispute would help get Puerto Rico through its overall debt restructuring process, being overseen by U.S. Federal Judge Laura Taylor Swain.

Senior COFINA bondholders proposed new bonds be issued with a 5.375 percent tax-exempt interest rate. These creditors would get new bonds equal to 100 percent of their pre-bankruptcy claims, while subordinated holders would get 45.7 percent of what they were owed.

Subordinated COFINA bondholders countered with new bonds issued at a 5 percent tax-exempt rate, with senior creditors getting 90 percent of their $7.762 billion in pre-petition claims. Subordinated COFINA creditors would recover 62 percent of their $9.9 billion in claims.

Overall, Puerto Rico owes about $71.5 billion in bonds. COFINA debt is approximately $18 billion of that amount.

Senior COFINA debt carrying a 5.25 percent coupon maturing in 2057 rose 1.3 points in price to bid 83.3 cents on the dollar 74529JAR6=MSRB, according to Thomson Reuters data. The 6 percent subordinated COFINA bonds maturing 2042 rose 0.7 point in price to bid 41.2 74529JHN8=MSRB.

Puerto Rico’s constitutionally backed benchmark 8 percent GO bond maturing in 2035 fell 0.25 point in price to bid 41.0 74514LE86=MSRB.

To view a graphic on Puerto Rico debt, click: reut.rs/2NcDYb1

Reporting By Luis Valentin Ortiz; Editing by Daniel Bases and Dan Grebler

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