Bondholder-sympathetic Puerto Rico Oversight Board Member Justin Peterson resigned Friday afternoon in protest of the impending Puerto Rico Electric Power Authority plan of adjustment.
Peterson announced his resignation on Twitter. The board says it will submit the proposed plan on Aug. 25.
“To be clear, I’ve decided to resign because I do not wish to be part of the [Puerto Rico Electric Power Authority] deal that is unfair, coercive and discriminatory,” Peterson wrote. The board “is essentially wiping out bondholders while keeping pensions fully intact. This is wrong.”
“I’m grateful for the opportunity to have served and I’m proud of what was accomplished during my tenure to bring Puerto Rico out of bankruptcy. Thank you to [Donald Trump] for the opportunity to serve our great country.”
Trump appointed Peterson to the board in October 2020. While Peterson’s appointment was to end in October, he could have been reappointed.
Before working for the board without pay, Peterson was a spokesman for the Ad Hoc Group of GO Bondholders through his work for publicity firm DCI Consulting. He has continued in this role.
Peterson’s departure “leaves the board entirely focused on cramming bondholders as hard as possible. It’s a big loss for bondholders,” said Puerto Rico Clearinghouse Principal Cate Long.
Peterson, she said, “was more attuned with Congressional intent for PROMESA than any other member of the Oversight Board,” adding Congress wanted a deal reached by consensus. “Eight years after PREPA first defaulted Justin was the only board member pushing for a PREPA consensual deal.”
Interamerican University of Puerto Rico Professor Antonio J. Fernós Sagebien agreed the expected deal discriminates. “PREPA’s new agreement is nothing but a cram-down deal,” he said.
While Sagebien likes that pensions remain “intact, the deal wiping out bondholder’s investment is discriminatory.”
But not everyone was a fan of Peterson. Attorney Phillip Escoriaza said, “While he may have had meaningful ties to the island, I never really learned what those were.”
Escoriaza noted thousands of Puerto Ricans depend on a pension to support their families. “This business of prioritizing bond creditors at the expense of retirees may sound great as a strictly financial exercise but sidesteps the key issue here: making sure to strengthen the working class with social policies that look to the future of the island and not reward risky choices of absentee investors.”
“This is not a typical business going belly up; this is an entire society,” said Escoriaza, who owns homes in Puerto Rico and is an attorney at Feldesman Tucker Leifer Fidell. “This resignation is surprising in its timing for sure, but not so much when one tries to identify what the underlying purpose of the appointment was and I never really understood it.”
Puerto Rico Attorney John Mudd wondered “what deals will be revealed next Friday.”
Peterson told The Bond Buyer he was proud of the general obligation bond and Puerto Rico Industrial Development Co. bond deals struck during his tenure.
Peterson said he understood the motivations of both the PREPA bondholders that will take a deal with the board and those committed to fighting it through appeals. He said he hoped the latter would prevail.
The board did not immediately respond to a request for a comment.