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HigH HoPes foR tHe Plan of aDjUstment
FOMB Touts Plan of Adjustment in its FY 2021 Report
First step towards a ‘new era of growth’ for Puerto Rico
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Rosario Fajardo
rfajardo@wjournalpr.com @RosarioWJournal
Editor’s note: Second in a series on the FOMB’s FY 2021 Annual Report With the U.S. District Court scheduled to hold hearings later this fall on the Plan of Adjustment to restructure billions of dollars in Puerto Rico government debt, the Financial Oversight and Management Board (FOMB) said it hopes the court will confirm the plan by the end of the year so that the island can exit bankruptcy and move on to a new “era of stability and prosperity.”
The Plan of Adjustment is among the highlights of the FOMB’s 232-page Fiscal Year Annual Report.
“The proposed Plan of Adjustment is a milestone on this path towards reducing Puerto Rico’s debt to sustainable levels and enabling economic growth,” said FOMB Executive Director Natalie Jaresko, adding that the plan comprises a series of agreements with a very diverse group of stakeholders, such as bondholders, unsecured creditors, retirees and unions.
Puerto Rico’s bankruptcy is not only the largest public debt restructuring in the history of the United States, but also extraordinarily complex, Jaresko noted. Puerto Rico’s $72 billion in debt was spread over more than a dozen public entities. The average debt service the government alone had to pay each year was $2.7 billion, and without PROMESA would have reached as much as $4.2 billion.
“In addition, the government owed retirees more than $55 billion in pension liabilities. Puerto Rico’s largest government pension system was about 1 percent funded – there was virtually no money left to pay retired government employees and pensions are now paid from the government budget rather than the insolvent pension trust,” she said.
The Plan of Adjustment for the central government is the largest part of Puerto Rico’s debt restructuring, with about $35 billion in claims by bondholders and creditors, and more than $55 billion in pension liabilities.
By the time COVID-19 hit in early 2020, the Oversight Board had already restructured COFINA’s debt, reducing it by $6 billion, from $18 billion to $12 billion and saving Puerto Rico $17.5 billion in total debt service payments, and reduced the Government Development Bank debt by $3 billion, from $5 billion to $2 billion, she explained.
According to the FOMB, the terms of the Plan of Adjustment provide the largest recovery of all claims classes to government retirees. The Oversight Board and the Official Committee of Retirees also agreed to take several steps to strengthen the pension system going forward. “For example, under the Plan of Adjustment, the Government would establish a pension reserve fund to support payment of pensions in any economic or political environment. In addition, if in any given year the Government budget surplus is larger than projected in the Certified Fiscal Plan, the reductions in retirement benefits can be reversed,” Jaresko said.
In addition, the Oversight Board agreed with the Public Servants United of Puerto Rico (SPU)/ AFSCME Council 95 to provide up to $1.2 billion to restore employee contributions to the Sistema 2000 retirement plan that contributors lost because the money the government withdrew from employee paychecks never ended up in their retirement accounts.
The Plan of Adjustment also includes a $2,600 deposit per employee to defined contribution accounts of members hired before the implementation of Sistema 2000 who were also affected by the 2013 freeze of accrued interest. In addition, the Plan makes teachers and judges for the first time eligible for Social Security.
“Meanwhile, holders of general obligation bonds and Public Building Authority bonds face cuts of more than 25 percent. Holders of bonds issued by the Employee Retirement System face a greater than 80 percent cut. Creditors who filed an unsecured claim against the government, for example vendors who have not been paid as well as other pending litigations against the government, could see the value of their claim reduced by about 80 percent,” Jaresko said.
Natalie Jaresko of the FOMB >Carlos Rivera Giusti, Archive
Protects Small Claims
Still, she noted that the FOMB also included terms that protect those with only very small claims. “Individual claims lower than $20,000, or if multiple claims are filed by the same claimant, below $40,000 in aggregate, will receive payment in full as part of the ‘convenience class.’ Someone
In fact, who claims their vehicle was wrongfully confiscated by the government and filed a claim The Plan of Adjustment lifts a weight off future generations by reducing $35 billion of existing claims by almost 80 percent, to $7.4 billion of new debt, as per the FOMB. for $5,000, for example, would be fully reimbursed. Certain Puerto Rico residents who filed claims for unpaid pensions or back pay, or missing income tax refunds will be paid in full once the claim is validated through an Administrative Claims Reconciliation (ACR) process” she explained. Overall, the Plan of Adjustment lifts a weight off future generations by reducing $35 billion of existing claims by almost 80 percent, to $7.4 billion of new debt. “The Oversight Board firmly believes that this is the best plan we could achieve under the legal and fiscal circumstances within which Puerto Rico finds itself,” Jaresko affirmed.
Triple-S: Utilization Trends ‘Fully Normalize’
Company has nearly 446,000 Medicaid members
Rosario Fajardo
rfajardo@wjournal.com @RosarioWJournal
Triple-S Management Corp. reported double-digit revenue growth for the second quarter (Q2) of 2021, driven largely by strong Medicaid results. Company officials also said that utilization trends have fully normalized, as the island, mainland U.S. and the rest of the world continue to battle the COVID-19 pandemic.
“We had another solid quarter and are pleased with our overall performance for the first half of 2021 as utilization trends fully normalize. We once again generated double-digit revenue growth yearover-year driven by our Medicaid offering and bolstered by another quarter of solid growth at our Life (insurance) and P&C (Property & Casualty) segments,” said Roberto García Rodríguez, president and CEO of the healthcare services company.
“We are also making steady progress on our integrated healthcare strategy, with plans to introduce team-based, integrated chronic care management programs in the next few months.
We remain confident in our expectations for the full year,” he added.
Total operating revenue for the quarter increased 15 percent from the prior year period to $1.01 billion as Triple-S benefited again from higher Medicaid membership and average premium rates. Adjusted net income was $10.5 million. This is $0.44 per diluted share compared with $1.76 per share in the second quarter of 2020.
“As you’ll recall, adjusted earnings per share in the same quarter of last year was significantly boosted by much lower utilization due to the pandemic,” García said to participants of the earnings conference call.
As expected, second quarter utilization of services has almost fully normalized compared to last year’s unusually low levels as the economy is reopening and more Puerto Ricans are fully vaccinated. “Despite this increase in utilization, we remain confident in our outlook for the full year,” he reported.
“Our Medicaid segment continued its healthy top line growth. We added another 9,000 members in the second quarter and continued to benefit from And recently, the Puerto Rico Health Insurance Administration notified us of its decision to extend the current Vital contract for an additional year through September 2022. Subject to the negotiation of rates over the next months, we have agreed to this extension.
the premium rate increases we received last year. We now have nearly 446,000 members, reinforcing our position as the leading Medicaid provider on the island,” he said. “And recently, the Puerto Rico Health Insurance Administration notified us of its decision to extend the current Vital contract for an additional year through September 2022. Subject to the negotiation of rates over the next months, we have agreed to this extension.”
With regard to Life, the company earned $196 million in premiums last year and expects to reach this amount in 2021. With over 672,000 contracts in force, the market share for Triple-S on the island is 21 percent for life policies and 27 percent for cancer policies.
The Triple-S chief reiterated that the island is open for business. “In terms of the overall environment in Puerto Rico, we remain optimistic, despite recent news concerning the Delta variant. [Some] 2.2 million Puerto Ricans, or approximately two-thirds of the island’s total population, have received at least one vaccine dose. [An estimated] 93 percent of the population older than 65 is fully vaccinated and 56 percent of the total population is fully vaccinated. This ranks Puerto Rico number 11 among all U.S. states and territories for full vaccination rates,” García noted. For full-year 2021, Triple-S is reaffirming its guidance based on the current economic environment, the continued impacts of COVID-19 and the investment in and initial benefits from the company’s strategic initiatives. “We expect consolidated operating revenue to be between $3.98 billion and $4.02 billion, which includes Managed Care premiums earned net between $3.58 billion and $3.62 billion,” he said.
A few weeks ago, the central government also reached a “verbal understanding with two bond insurers that should hopefully pave the way for a final approved debt restructuring and the emergence to Puerto Rico from bankruptcy by the end of the year,” he added.
