This article was originally published by Law360.com.
Law360, New York (May 22, 2017, 6:51 PM EDT) — The number of entities engaged in Puerto Rico’s restructuring doubled over the weekend to four, as the board overseeing the U.S. territory’s bankruptcy-like process filed relief petitions for the island’s largest public pension system and its transportation agency, which both owe billions to debt holders.
The Financial Oversight and Management Board for Puerto Rico filed the cases in San Juan federal court on Sunday, seeking protection under Title III of the 2016 Puerto Rico Oversight, Management, and Economic Stability Act for the territory’s Highways and Transportation Authority and Employees Retirement System.
Board chairman José Carrión said that the two agencies, like the territory’s central government and bond issuer COFINA, needed cover under PROMESA to protect residents and the interests of creditors and pensioners while avoiding “further negative impact on the economy from a flurry of litigation and continued uncertainty.”
Puerto Rico began its court-monitored restructuring process at the beginning of the month with about $74 billion in public debt and an additional $49 billion in pension liabilities. In addition to owing payments to pensioners, ERS owes nearly $3.1 billion to bondholders, while HTA is looking at roughly $6 billion in loan obligations.
Although Puerto Rico’s recently approved fiscal plan already contains “substantial expenditure cuts and revenue increases” aimed at balancing the budget and making funds available for debt service, “the government’s liquidity and solvency problems are massive and Title III has now become necessary to protect the people of Puerto Rico,” Carrión said in a statement.
Amid a massive debt crisis and one day after major creditors filed suit over bond payments, Puerto Rico on May 2 filed for a form of bankruptcy protection that will allow it to restructure its debts under PROMESA. The act, which was signed into law by President Barack Obama last year, allows Puerto Rico to pursue a court-monitored restructuring of its public debts, if the oversight board determines the local government has engaged in good-faith negotiations with creditors.
Pensions in Puerto Rico for public employee retirees vested in the Employee Retirement System are at or below the poverty level, according to court filings from the American Federation of State, County and Municipal Employees.
An official retiree committee is being formed after a request from an ad hoc committee comprising several public employment retiree organizations. The commonwealth has around 160,000 public employee retirees and another 160,000 who are active employees with accrued benefits, the filing said.
The ERS projects that it will deplete its liquid assets by the end of fiscal year 2017 or during the first half of fiscal year 2018, and may have to operate on a “pay-as-you-go” basis unless the Commonwealth and other participating employers provide additional funding on a timely basis to meet retirement benefits in full, according to a December financial report.
The oversight board is represented by Martin J. Bienenstock of Proskauer Rose LLP and Herman Bauer-Alvarez of O’Neill & Borges LLC.
The case is In re: Commonwealth of Puerto Rico, case number 3:17-cv-03283, in the U.S. District Court for the District of Puerto Rico.
–Additional reporting by Melissa Daniels. Editing by Emily Kokoll.