Bonistas del Patio Offers Debt Restructuring Proposal
SAN JUAN – After insisting that the government of Puerto Rico does have the money to pay its debt, Bonistas del Patio, a group comprised by local bondholders, has proposed a debt restructuring offer to the commonwealth government.
The offer was made during the First Encounter of Bonistas at the Puerto Rico Convention Center, days before the government is slated to default on a $1.6 billion debt payment.
It also occurs as the U.S. Senate is slated to pass legislation that would establish a fiscal control board for Puerto Rico, the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa).
To allow the government time to carry out necessary reforms and restructuring, Bonistas del Patio said it was willing to voluntarily accept a five-year principal payment moratorium and deferral on all governmental issuers, including general obligations and Cofina, the Sales Tax Financing Corp.
“This would significantly reduce the Commonwealth’s fixed principal payment obligations by approximately $5.8 billion during such five (5) year period,” said Jorge Irizarry, spokesman for Bonistas del Patio, which represents some 60,000 bondholders, representing about $15 billion worth of debt.
Irizarry said interest payments on all obligations must continue to be paid. “This allows for approximately $2,055,120 million a year to continue flowing into our economy,” he said.
The creditor group’s members may be willing to consider haircuts on certain credits, only if the government provides up-to-date audited financial statements and operating information on all credit classes and an unequivocal inability to pay is determined.
“It is wrong for the government to impose cuts to bondholders when it has not presented audited financial reports,” he said.
Bonistas del Patio said it will also be able to accept a haircut if the government is willing to restructure all expenses, not only debt service.
According to the group, the liquidity crisis prevents the payment of principal payments that are due. It also says the current and projected revenues allow for the repayment of debt without sacrificing essential services. Only three of the bond issuers, the Government Development Bank, the Public Finance Corp. and the Highways and Transportation Authority, have cash flow problems, it adds.
It based its analysis on audited financial statements as of 2014 and on government information.
Economist Carlos Colón de Armas, who participated in a panel during the event, contends that about 84% of the budget is expenditure-related, and “there is a lot of waste.” He said 16% of the budget can be used to pay debt.
Data from Treasury Department shows revenue has risen by $280 million.
“What happened to the economy is that expenditures went up and investment went down,” he said.
Economist José Alameda said the problem has to do with how the government manages its funds, wasting money. As an example, he spoke of a bill approved by the Legislature that allows mayors to retire after eight years with 75% or 80% of their salary.