A suggestion from a U.S. Treasury official to protect Puerto Rico’s pension payments while also seeking cuts from all bondholders may be viewed as the latest sign that politicians favor retirees over investors in cases of municipal distress, Bloomberg News reported yesterday. Treasury Counselor Antonio Weiss said in prepared testimony yesterday that a failure to ensure payments from Puerto Rico’s pension system, which has more than 330,000 beneficiaries and is underfunded by $44 billion, would harm the commonwealth’s residents and damage its economy. Meanwhile, “all creditors must be at the table” to restructure the island’s liabilities to an affordable level, he said. It could “set a dangerous precedent,” said Peter Hayes, head of munis at BlackRock Inc., which oversees $110 billion of the debt. “Pensions are clearly down the capital structure in terms of hierarchy and repayment. So the political side of it is boosting them higher than bondholders.” Read more.
In related news, Puerto Rico's largest mutual fund creditors are urging the cash-strapped island to honor debt owed to creditors of its sales taxing authority, to avoid a ripple effect they say could threaten other restructuring deals on the island, Reuters reported yesterday. Puerto Rico, facing $70 billion in debt, is trying to climb out of economic crisis by reaching consensual restructuring deals with various creditor groups. Among its obligations is about $17 billion in debt owed to creditors of its sales taxing authority (COFINA). In a letter on Wednesday to Puerto Rico's legislators, Franklin Advisers, OppenheimerFunds and the First Puerto Rico Family of Funds said the U.S. territory should protect COFINA debt. The funds have more than $10 billion combined invested in Puerto Rico, including a big stake in COFINA. In a debt restructuring proposal earlier this month, Puerto Rico's advisers proposed cutting various debt, including reducing COFINA debt by about 51 percent. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
