More Puerto Rico agencies enter bankruptcy – MarketWatch

The federal board overseeing Puerto Rico's financial rehabilitation is enlarging the U.S. territory's court-supervised bankruptcy, placing its nearly depleted pension system and its transportation agency under court protection.

The Employees Retirement System, known as ERS, and the Highways and Transportation Authority, known as HTA, entered a debt-restructuring process that amounts to municipal bankruptcy Monday in the federal court in San Juan.

Those two systems are now under a federal debt-adjustment law known as Title III alongside the Puerto Rico government and its sales-tax bond issuer, known as Cofina. U.S. District Judge Laura Swain Taylor, who is presiding over the cases, held the first court hearing on the government's case last week.

"This is part of a court-supervised process within a framework that provides for an orderly restructuring of the debt of each entity and allows as much creditor consensus as possible," said a spokesman for Puerto Rico's fiscal agency.

The pension system's bankruptcy has implications for hundreds of thousands of government retirees and pensioners who are up against bondholders in the renegotiation of Puerto Rico's debts. So far, the oversight board has signaled it wanted more of the restructuring burden to fall on financial creditors compared with retirees, proposing a 10% cut in pension benefits while allocating less than a quarter of the debt service owed for the next 10 years.

Estimates vary as to the size of the gap between what the pension fund's assets and its promises to its beneficiaries, but Puerto Rico projects the unfunded liability at roughly $45 billion, the product of years of deficient funding by government employers. ERS also owes $3 billion to bondholders. The highway agency owes roughly $6.3 billion in debt, including $1.8 billion to Puerto Rico's insolvent industrial development bank, according to the oversight board.

Puerto Rico and its agencies owe roughly $73 billion in bond debt, dwarfing the roughly $9 billion owed by the city of Detroit when it entered what was previously the largest municipal bankruptcy in 2013.

The bankruptcy proceedings are the culmination of years of economic distress and heavy borrowing that has more recently pitted Wall Street creditors against local officials struggling for fiscal flexibility. Creditors are also battling each other for top priority.

Write to Andrew Scurria at Andrew.Scurria@wsj.com

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More Puerto Rico agencies enter bankruptcy - MarketWatch