Friday, October 18, 2019

Acosta: Creditors’ Counterproposals Fail to Solve Puerto Rico’s Debt Problem

By on April 8, 2016

SAN JUAN – Despite some creditor groups having presented debt-restructuring counterproposals to the Puerto Rico government, these wouldn’t solve the island’s unsustainable debt burden nor the Government Development Bank’s (GDB) $422 million debt payment in May, the bank’s President & Chairwoman Melba Acosta stated late Friday.

“The commonwealth has a limited amount of resources to be dedicated toward debt repayment; we need to distribute this limited amount among all types of debt in a way that, respecting the differences between them, is also equitable for all bondholders, including the thousands of local bondholders,” Acosta stated Friday, while adding that the government is seeking a comprehensive and equitable solution for all creditors.

The GDB chief added that the commonwealth’s most recent voluntary debt-restructuring proposal was presented to creditors March 23, an offer that took into consideration some of the terms under the counterproposals that have been presented to date by some creditor groups.

As previously reported by Caribbean Business, the Alejandro García Padilla administration sought to publicly release its most recent offer to creditors at some point during the last month, but plans were suspended amid the signing of nondisclosure agreements between the parties. Creditor groups would have asked the government not to release its proposal publicly until all sides were closer on to their terms, sources said at the time.

“But because of the recent publication of counterproposals by three [creditor] groups, the commonwealth will soon be making its proposal public, with certain modifications,” Acosta stated Friday, while stressing the commonwealth government’s offer is “the most beneficial” for all creditor groups.

“The commonwealth’s proposal respects the differences between the different types of debt, while trying to be fair, and also giving importance to…Puerto Rican bondholders,” she added.

The government’s last proposal, made public earlier this year, sought to exchange about $49 billion of debt for two new types of securities, while calling for initial haircuts, or reductions to principal, of around 45%, depending on the credit.

Meanwhile, despite reports denying that talks between creditors and the commonwealth have been taking place, Acosta echoed comments by various government officials in stressing that negotiations are ongoing.

This week, a group of creditors holding some $5 billion in general obligation bonds (GOs) released a restructuring proposal for the commonwealth government. The Ad Hoc Group of Puerto Rico GO bondholders is offering a five-year holiday on principal payments that would save the island roughly $1.9 billion, while providing $750 million in new money with the issuance of new GOs, according to a term sheet released Monday by the group. The document further states it would allow the government to fully meet its $780 million payment on GO debt due July 1, thus avoiding a default.

Meanwhile, a group of Sales Tax Financing Corp. (Cofina by its Spanish acronym) creditors also put together a restructuring proposal that was publicly released in February, providing debt-service relief under Cofina during the next few years, although extending payments for a longer time. This way, Puerto Rico would save roughly $2 billion during the next four years, according to the Cofina group, but no haircut  is contemplated.

A coalition of local cooperatives and credit unions have also brought their own proposal to the table, seeking a “point of entry” debt-restructuring mechanism based on the price at which each bondholder acquired their respective Puerto Rico bonds.

Andrew Rosenberg of Paul, Weiss, Rifkind, Wharton & Garrison LLP, an adviser to the GO ad hoc group, stated Monday that “while we would like to negotiate with the Puerto Rican Government in private and in good faith, the debt moratorium it has proposed that is before the Puerto Rican legislature has prompted this public release. We welcome engagement with important stakeholders throughout Puerto Rico, including the legislature and other leaders. We also welcome engagement with other GO bondholders.”

Acosta noted Friday how public comments made by advisers for the GO ad hoc group “seem to indicate it prefers to negotiate through the media and not on the negotiating table,” while likening the situation to what happened at the Puerto Rico Electric Power Authority back in 2014, when it began debt-restructuring talks with its creditors. “It was not until all parties sat down and negotiated, in the case of Prepa, that they could reach an agreement,” Acosta said.

“Incurring additional debt at a higher cost is not the answer to the commonwealth’s fiscal issues—indeed it is exactly the type of ‘Wall Street’ solution that led us to the precipice we are now looking over,” she stated earlier this week.

Presidente del BGF, Melba Acosta

Melba Acosta, president & chairwoman of the GDB

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