%1

Puerto Rico will formally end its bankruptcy on Tuesday as the federally appointed financial oversight board implements key provisions of the commonwealth’s debt adjustment plan, including the establishment of a pension reserve trust and the exchange of existing bonds for new debt, Reuters reported. An emergence from bankruptcy has been a long time coming for Puerto Rico, which has been in Title III since May 2017. In January, U.S. District Judge Laura Taylor Swain approved a $135 billion debt-adjustment plan. On Tuesday, the financial transactions outlined in that plan, including approximately $10 billion in settlements with creditors, will go into effect, the oversight board said on Monday. That amount includes $7.2 billion for general obligation bondholders, $1.4 billion for public employees' retirement accounts, and $200 million for general unsecured creditors, according to the board. The plan reduces $33 billion in bond debt to $7 billion and cuts overall debt by around 75%. It includes protections that limit how much debt Puerto Rico can take on in the future. The plan also slashes the commonwealth’s annual debt service to around $1.5 billion from $3.9 billion previously. Puerto Rico had not made a payment on its general obligation bond debt since early 2016. But that plan only addresses the commonwealth’s own debt. The case is In re Puerto Rico Electric Power Authority, U.S. District Court, District of Puerto Rico, No. 17-04780.

Cities and counties across the United States have found themselves in the surprisingly uncomfortable position of deciding how best to spend a windfall of federal relief funds intended to help keep them afloat amid deadly waves of COVID-19 infections, the New York Times reported. The pandemic, which is showing signs of waning as it enters its third year, prompted the largest infusion of federal money into the U.S. economy since the New Deal. President Biden and former President Donald J. Trump got Congress to approve roughly $5 trillion to help support families, shop owners, unemployed workers, schools and businesses. A large portion of the aid went to state, local and tribal governments, many of which had projected revenue losses of as much as 20 percent at the pandemic’s onset. The largest chunk came from Mr. Biden’s $1.9 trillion recovery bill, the American Rescue Plan, which earmarked $350 billion. That money is just beginning to flow to communities, which have until 2026 to spend it. In many cases, the money has become an unusually public and contentious marker of what matters most to a place — and who gets to make those decisions. The debates are sometimes partisan, but not always divided by ideology. They pit colleagues against each other, neighbors against neighbors, people who want infrastructure improvements against those who want to help people experiencing homelessness.

Illinois lawmakers are considering a bipartisan proposal to authorize selling $1 billion of debt to pay for pension buyouts, in a bid to reduce the worst-rated state’s massive unfunded liability for its retirement systems, Bloomberg News reported. A bill introduced in December by state Representative Bob Morgan, a Democrat, would approve borrowing to extend a buyout option for many employees of the state, its universities and school systems. The debt would be on top of a previous authorization from 2018 to issue $1 billion of so-called pension-obligation acceleration debt, most of which has been sold. The pension-buyout program has already cut Illinois’s liability by $1.4 billion, but that still leaves an unfunded obligation of about $130 billion, state data show. A key distinction of the Illinois program is that it reduces liabilities, instead of replacing them with a bond obligation, as traditional municipal pension debt typically does, Kim said. Illinois has sold traditional pension securities, including $10 billion in 2003.

The U.S. Virgin Islands is racing to sell its rum-tax collections to bondholders ahead of expected interest-rate hikes, pitching an $890 million debt refinancing as the answer to a government pension system’s looming insolvency, WSJ Pro Bankruptcy reported. The Virgin Islands legislature said that it approved the planned refinancing on Monday, clearing the way for a proposed deal to refinance outstanding rum-tax bonds maturing over the next two decades with new securitization debt. Refinancing will free up short-term money to avoid threatened cutbacks to retiree pensions, lawmakers said. Surplus rum-tax revenues would also be dedicated to the U.S. territory’s public pension system, providing it a long-term funding source, according to the authorizing legislation. Gov. Albert Bryan Jr.’s administration had tried and failed to complete a similar deal in 2020, canceling it after a legal challenge and legislative amendments. The Virgin Islands is betting that investors will take part in the new deal because it would tighten their grip on rum-tax revenue while protecting them from the risk of a possible future government bankruptcy. The Virgin Islands faces stiff financial challenges, with its bonds rated as junk, its public pensions underfunded by $5.78 billion as of 2020 and its population declining.

The U.S. Treasury Department stuck by its rule that states and cities can’t use pandemic relief aid to pay down debt, Bloomberg News reported. The Treasury yesterday released its final rule detailing how municipalities can use some $350 billion of aid from the Biden administration’s American Rescue Plan. The rule bars governments from using the funds to pay debt service, one of several restrictions that the Treasury has put on the money. A bevy of governments like Illinois had asked the Treasury to relax that restriction, arguing that they needed to take on debt when the pandemic upended their finances in 2020. The Treasury has emphasized that the lifeline to states, cities, counties and other governments is intended to help them rebuild their workforces, maintain government services and aid in the U.S. economic recovery.

The Long Beach, New York city council approved a tentative settlement on Tuesday evening with a real estate developer who was awarded a judgment this year now estimated to be worth nearly $150 million, that threatened the city with insolvency, Bloomberg News reported. Long Beach, a city of about 34,000 on a barrier island off Long Island’s south shore, agreed to pay developer Sinclair Haberman $75 million in cash and permit him to build two 13-story buildings with a rooftop penthouse on a long-vacant lot along the boardwalk. The parties have 90 days to finalize their settlement, which also needs ratification from the city’s zoning board. Long Beach and Haberman have been warring since the 1980s, after the city first granted a variance to zoning rules to Haberman’s father to build beachside developments, then changed its zoning laws and denied permits to a large part of the project. In May a judgment of $140.83 million was entered against the city and its zoning board of appeals. With interest accruing at about $1.1 million per month, Long Beach estimated the judgment in the Haberman litigation now to be around $148.9 million. To pay for the settlement, according to M3 Partners, Long Beach’s financial adviser, the city intends to issue general obligation bonds that will likely cost $5 million to $6 million annually to service.