UPDATE 1-Puerto Rico government objects to moving forward with new debt plan

(Adds oversight board statement)

SAN JUAN, Feb 19 (Reuters) – The government of bankrupt Puerto Rico told a federal judge on Wednesday that its opposition to a plan announced earlier this month to restructure more than $85 billion of its debt should put the brakes on a confirmation process.

The U.S. commonwealth’s federally created financial oversight board had asked Judge Laura Taylor Swain to approve a schedule that would culminate with a confirmation hearing on a so-called plan of adjustment for Puerto Rico’s core government debt and pension obligations starting in October.

The scheduling motion followed the board’s Feb. 9 announcement that it had reached a deal with an expanded group of bondholders to reduce $35 billion of bonds and claims to about $11 billion, moving Puerto Rico closer to exiting bankruptcy, which began in 2017.

But Puerto Rico Governor Wanda Vazquez objected to the deal’s enhanced recoveries for some bondholders, while certain government retirees would still face the same pension cuts called for in an earlier plan the board announced in September.

In a court filing on Wednesday, Puerto Rico’s fiscal agency said the revised plan of adjustment, which the board has not yet filed in court, was “unconfirmable.”

“Unless the oversight board clearly articulates how it proposes to confirm the amended plan without government support and cooperation, any confirmation schedule is patently premature,” the filing stated.

It added that the deal with bondholders required legislative action to issue new general obligation and junior lien sales tax-backed bonds, noting the board lacked the power to legislate under the 2016 federal PROMESA Act, which created the board and a form of municipal bankruptcy for the Caribbean island.

In a statement, the oversight board said: “There is time to obtain government support in this process but waiting and not doing anything about it in the interim would be a disservice to the goal of getting Puerto Rico out of bankruptcy.”

James Spiotto, managing director of Chapman Strategic Advisors and a municipal bankruptcy expert, said PROMESA does not allow the board “to enact legislation for a new bond issue or to incur new debt.” He added it was doubtful the judge could order the government to take action. “Hopefully both the oversight board and the legislature and the governor will realize they are all in it together and there is no benefit to delay or obstruction of any reasonable and fair resolution,” he said. (Reporting by Karen Pierog in Chicago and Luis Valentin Ortiz in San Juan; Editing by Matthew Lewis and Peter Cooney)

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