In the wake of Puerto Rico’s bankruptcy filing, hedge funds are competing with the U.S. territory’s workers to get paid. The island has guaranteed retirees and workers $49 Billion in benefits. However, the federally appointed oversight board expects that it will have to cut pension costs by 10%.
Even worse for bondholders, they could get less than 25% of what bondholders are owed. This is true even for bondholders with General Obligation debt, which was supposed to have been constitutionally guaranteed. Creditors that own COFINAs, Puerto Rico sales tax bonds, are being offered up to 58 cents on the dollar should the territory’s finances get better. Both sides will appear in federal court in San Juan Puerto Rico in an attempt to try to work out a deal.
It was just recently that Puerto Rico’s oversight board submitted for Title III bankruptcy protection to help lower Puerto Rico’s $74 Billion of debt and deal with the Commonwealth’s pension crisis. Under Title III, the island can make pension recipients accept reduced benefits.