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The proposal won the support of Puerto Rico's new governor even though it calls for pension cuts for about 40 percent of the island's government retirees.
Puerto Rico would reduce a major portion of its debt by more than 60 percent under a long-awaited restructuring proposal the bankrupt U.S. commonwealth's federally created financial oversight board filed in court on Friday.
The so-called plan of adjustment covering US$35 billion of bonds and claims and more than US$50 billion of pension liabilities would allow Puerto Rico to exit a form of bankruptcy that commenced in May 2017 if it wins U.S. District Court approval.
The plan creates an independent reserve trust for Puerto Rico's pay-as-you-go public sector retirement system and calls for a maximum 8.5 percent pension cut for retirees who receive more than US$1,200 in monthly benefits. A federal court-appointed committee representing more than 167,000 retirees has agreed to the plan.
Other groups that represent pensioners such as the Teachers Federation and the Government Retirees and Pensioners Federation rejected the proposal, noting that the court-appointed committee does not represent them in the negotiations.
Before former Governor Ricardo Rossello left office last month and was eventually replaced by Wanda Vazquez, Puerto Rico's government opposed pension cuts.
In a televised address, Vazquez said while she opposes cuts to pensioners in principle, her administration will support the proposed plan of adjustment to avoid risking stiffer pension cuts and "losing the opportunity to restructure more than US$35 billion in commonwealth debt."
So far, Puerto Rico has received court approval for debt restructurings for its Government Development Bank and Sales Tax Financing Corporation known as COFINA. The Puerto Rico Electric Power Authority moved closer to exiting bankruptcy earlier this month when two holdout bond insurers joined a deal to restructure its debt.
Confirmation of the plan by U.S. Judge Laura Taylor Swain, who is hearing Puerto Rico's bankruptcy cases, is expected in the first half of 2020, according to Natalie Jaresko, the board's executive director.