(Bloomberg) -- Puerto Rico’s plan to restructure $33 billion of bonds and other debt is at risk after the Senate failed to authorize new securities and slash the island’s obligations, potentially dragging out a four-year bankruptcy even longer.
The commonwealth’s financial oversight board will seek to delay confirmation hearings set for November on the debt restructuring plan unless Governor Pedro Pierluisi and lawmakers on Friday find a way to enact legislation by 2 p.m. approving the new bonds. The panel may also withdraw the debt adjustment plan. Either way, it means a longer path to exit bankruptcy, which began in May 2017.
“As a result, Puerto Rico would remain in bankruptcy and the burden of unsustainable debt will remain on the shoulders of all Puerto Ricans, threatening economic progress on the island,” the board said in a statement Thursday.
The legislation is needed so Puerto Rico can reduce $33 billion of debt, including cutting $22 billion of bonds backed by the commonwealth down to $7.4 billion. It’s the largest bankruptcy in the municipal-bond market.
While the bill helps Puerto Rico resolve its bankruptcy, some lawmakers fear the oversight board will impose cuts to pension benefits and reduce spending for municipalities and the University of Puerto Rico even after the panel last week capitulated and agreed to leave retirement benefits intact and boost spending for localities and the UPR.
“They are asking us to trust them, but they’re the ones who have been trampling the people of Puerto Rico,” Senator Thomas Rivera Schatz, leader of the Senate minority, told reporters late Thursday.
Senate President Jose Dalmau said on the chamber’s floor Thursday night that he doesn’t have the 14 votes to pass the bond bill. The Senate ended its session and plans to reconvene Oct. 26. The House approved the bill on Tuesday, and it has Pierluisi’s support.
The board’s debt adjustment plan is a result of years of negotiations between the oversight board, bondholders, insurance companies, vendors and labor groups. Without such a debt plan, Puerto Rico may need to begin repaying its bonds if creditors ask the court to lift a moratorium on debt payments currently in place, according to the board.
While the oversight board has contemplated asking the court to authorize new bonds if Puerto Rico lawmakers fail to approve the securities, that’s a rare move in the municipal market. State legislatures and local elected officials tend to authorize borrowings.
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