Unhappy with approved fiscal plan, Puerto Rico creditors make moves to change it

Events are unfolding fast as the Fiscal Management & Oversight Board appointed to oversee the finances of Puerto Rico and ensure that the territory stays on track to hit budget goals, announced that it would be backing Governor Rosselló’s fiscal plans for the crisis. In response to feeling left out of the deal, a group of bondholder’s namely the Franklin advisors and The Oppenheimer Fund, issued a letter on March 13 detailing their issues with the united support of the plan without their input.

Creditors had filed suit against the Puerto Rican government and its former Governor Garcia Padilla In June of 2016 for violating key components of the PROMESA. The territory and its governor allegedly passed a 2017 budget which did not allocate funds for the general obligation debt it had accrued, in direct violation of PROMESA which ultimately lead to a freeze on the territory’s July 1, 2016 payment of 800 million. Interestingly enough PROMESA put a freeze on all litigation until May 1, 2017.  In the  initial complaint in June 2016,  bondholders say they were not looking to compel payment on their debt, but instead were asking that the court prevent Puerto Rico “from unlawfully dissipating these assets before the Oversight Board is fully operational.”

Now that the board is fully operational and has backed Rosselló’s plan, bondholders are fighting back to ensure that the general obligation debt is handled first and foremost.

Some individual bondholders within the group such as UBS Puerto Rico are also under fire from the public for inflaming the economic crisis. They did this by encouraging investors to over concentrate in high risk, illiquid, closed end municipal bonds while not disclosing the risk. UBS Puerto Rico was ordered to pay 19 million in FINRA verdict in December 2016.

The recent letter issued goes on to say Rosselló’s plan was unfeasible, ignoring payment priorities, offering too weak an analysis on debt sustainability and not going far enough on tax reform. They requested that the Oversight Board postpone their previous deadline thru December 31, in order to negotiate a debt restructuring plan that was bi partisan without worrying about lawsuits.

The new  fiscal plan is just in its infancy and will take time to hammer out a specific plan to be finalized by June 30. They recently made more amendments to the plan to make room for the possibility of Puerto Rico’s three main pension plans running out by 2018.