By Nick Brown
SAN JUAN (Reuters) - U.S. District Judge Laura Taylor Swain, presiding over Puerto Rico's massive bankruptcy, approved an agreement between the island's competing creditor classes on Wednesday aimed at moving forward with an effort to resolve claims on sales tax revenue.
The deal between the two biggest creditor classes, General Obligation (GO) bondholders and COFINA bondholders, includes the appointment of an agent for each side who are charged with pursuing the best resolution for their debtor’s estate as a whole, as opposed to advocating for particular creditors of that debtor.
COFINA’s bonds are backed by the island’s sales tax revenue, while GO debt carries a constitutional guarantee giving it a claim on all Puerto Rico’s revenues.
The deal, approved by Swain at a hearing taking place in San Juan, gives the two sides until Dec. 15 to either settle the dispute or have Swain issue a ruling.
The groups, which together hold about half the U.S. territory’s $72 billion in debt, are fighting over which side has the primary claim on sales tax money. Settling that fight is crucial to clarifying Puerto Rico’s convoluted debt structure and resolving its bankruptcy, which it filed in May under the federal Puerto Rico rescue law known as PROMESA.
In addition to its debt, held by millions of American investors, Puerto Rico is shouldering insolvent public pensions, a collapsing healthcare system, and poverty and unemployment rates that dwarf U.S. averages. All of this contributes to a population exodus and shrinking tax base, which in turn makes the debt load even harder for the island to bear.
U.S. Federal Judge Barbara Houser, who leads a mediation team in the bankruptcy, appeared at Wednesday’s hearing to say her team was “developing its game plan on how we are going to tackle these issues,” and that she expects formal mediation talks to begin “within the month” on some issues.
Swain was expected to also rule on a motion by creditors to appoint a receiver for Puerto Rico’s debt-laden power authority, PREPA.
Much of the morning discussion centered on fees for lawyers and other professionals, which some experts believe could top $1 billion.
A handful of firms whose fees are being paid by Puerto Rico’s estate have agreed to take discounts of between 15 and 20 percent, proposals Swain generally approved.
(Reporting By Nick Brown; Editing by Daniel Bases, Bernard Orr)