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Bonistas del Patio’s Advisers About to Sign NDAs

By on June 24, 2016

SAN JUAN – Backyard Bondholders, or Bonistas del Patio, the advocacy group that seeks to represent the more than 60,000 residents of the island who hold Puerto Rico debt, is on the verge of signing nondisclosure agreements (NDAs) that are being required by the Alejandro García Padilla administration in the run-up to a restructuring process that is beginning to resemble cell mitosis.

“Not yet, we haven’t signed the NDAs yet. We turned in data [requested by the government] and we got a draft of the NDA sent to us and the lawyers are analyzing the latest draft to then sign. This would give us access to data that is not public, that otherwise we would not have,” Backyard Bondholders Executive Director Jorge Irizarry told Caribbean Business during an exclusive interview.

Signing these NDAs, which have been criticized by some creditor groups as an attempt to silo creditors—to essentially keep them from sharing information to form a united front—will allow the advocacy group’s advisers to finally sit at the table with the island’s restructuring brigades.

“We have been at the NDA process for about a month because we had to turn in a report on the composition of our debt,” conceded Irizarry during the interview. “We have $864 million [of the estimated $15 billion held by local bondholders] reporting at this point in time. Credit unions have $1.1 billion.”

Bonistas del Patio Executive Director Jorge Irizarry, left, in an interview with Caribbean Business Executive Editor Philipe Schoene Roura, foreground, and reporter Luis J. Valentín

Bonistas del Patio Executive Director Jorge Irizarry, left, in an interview with Caribbean Business Executive Editor Philipe Schoene Roura, foreground, and reporter Luis J. Valentín

According to preliminary data, he said group members hold more than 20% in Sales Tax Financing Corp. (Cofina by its Spanish acronym) bonds and another 25% on Government Development Bank (GDB) notes. “So there is more than 50% in Cofina and GDB notes, then comes PFC [Public Financing Corp.] and holders of general-obligation debt—in the group that has reported until now,” explained Irizarry.

He added that Backyard Bondholders members also hold debt of the P.R. Electric Power (Prepa), P.R. Aqueduct & Sewer (Prasa) and Highways & Transportation (HTA) authorities, as well as pension-obligation bonds (POBs). “We have Prepa, Prasa—but I am surprised that we have very little in POBs, we have very little in HTA. Holders of pensions make up one of the largest groups [of local bondholders],” he noted.

For Irizarry, when it comes to commonwealth debt held locally, the breakdown is something like this: “subordinate Cofina, senior Cofina, then GDB, PFC and POBs. And maybe more POBs than PFCs.”

Irizarry went on to say that Bonistas del Patio is mulling whether to advise its members to enter information on the García Padilla administration’s recently unveiled creditor registry. To undertake this effort, the government tapped New York-based BondCom Group, which seeks to help debt issuers “navigate the twists and turns of successful bondholder initiatives,” according to the firm’s website.

“Well, we are analyzing that right now along with Promesa [Puerto Rico Oversight, Management & Economic Stability Act], because that bill might have some provisions that will promote the creditors’ registry,” he said, while acknowledging that some questions remain over the government’s initiative, such as why the need to bypass a trustee, which typically takes care of issuer-bondholder communication. “We would like to tell our members what that means.”

As for Promesa, the advocacy group fully supports the legislation. Bonistas del Patio hired the law firm Williams & Jensen, which has lobbied aggressively on Capitol Hill on the group’s behalf. Lobbyists met with key U.S. representatives, including Rep. Sean Duffy (R-Wis.), Rep. Rob Bishop (R-Utah) and House Speaker Paul Ryan (R-Wis.), who led the Promesa charge. The firm’s work lobbying Rep. Raúl Labrador (R-Idaho) was also important because the congressman, who was born in Puerto Rico, played a key role in rallying support for the measure among conservative members who belong to the Republican Freedom Caucus.

This was key in obtaining the majority of the Republican majority mandated by Ryan, a threshold known as the Hastert Rule, named after former House Speaker Dennis Hastert. That Promesa passed by such a wide margin in the House (297-127) has encouraged Backyard Bondholders to believe the measure will be passed in the Senate.

The advocacy group is now trying to make headway in negotiations that mandate NDAs are signed before their representatives can sit and restructure. Moreover, the group is also seeking to reach out to the 60,000 local residents who own Puerto Rico debt and it intends to bring together as many of them as possible at the Bondholders of Puerto Rico First Meeting, to be held June 27 at the P.R. Convention Center.

With the event, Irizarry said the group wants to provide its constituents and prospective members with valuable information on the island’s fiscal situation, including an outlook into the future as a new administration enters La Fortaleza in January. The agenda includes various panels featuring local and federal government officials, gubernatorial candidates, creditors’ representatives and other pundits on the matter.

By Philipe Schoene Roura and Luis J. Valentín

The Puerto Rico Convention Center in San Juan

The Puerto Rico Convention Center in San Juan

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