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GO Bondholders Release Term Sheet for Deal

By on April 5, 2016

SAN JUAN – Numerous investors, including certain mutual funds, holding some $5 billion in Puerto Rico general obligation bonds (GOs) have agreed on the terms of a joint restructuring proposal of the debt.

“It is expected that additional GO bondholders will join in this proposal in the very near future. Their joint restructuring proposal has now been released by the GO Bondholder group,” according to a statement issued Tuesday by some of the island’s bondholders.  

In addition to releasing a  term sheet, Andrew Rosenberg of Paul, Weiss, Rifkind, Wharton and Garrison LLP, an adviser to the Ad Hoc group of Puerto Rico GO bondholders, said “We believe this proposal has significant local bi-partisan support in the legislature, which should be encouraging to the Government of Puerto Rico.

“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.”

The attorney said the offer should be attractive to the commonwealth as it defers nearly $2 billion in principal over the next five years, and provides new money. “Most importantly, this consensual process avoids a July 1 default, which would irreparably harm Puerto Rico’s economy, hurt millions of American citizens who live on the island, and impair Puerto Rico’s access to markets and its ability to finance essential services.”

Government Development Bank (GDB) President Melba Acosta said earlier Tuesday that holders of GOs had not made the commonwealth an offer.

Late Tuesday, the bank issued a statement that reads: “This proposal fails to solve the severe and real challenges that the Commonwealth is now facing. 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. Moreover, while this  proposal would allow the Commonwealth to “scoop and toss” its GO obligations and pay GOs interest, it would do so at the expense of holders of all of the other credits of the Commonwealth, many of whom are residents of Puerto Rico. The Commonwealth has been clear from the beginning—we need a comprehensive restructuring that, while recognizing priorities among creditors, does not place the burden of the restructuring  entirely on any single group of stakeholders.”

During a press conference, Acosta said the government has been negotiating , for months, with bondholders about $48 billion of the debt. She insisted the commonwealth has made offers to bondholders and denied remarks that the government has rejected to talk to them or that there were financial offers available that would deal with the island’s fiscal problems. “To make it clear, we have not received a single offer of agreement that is financially viable nor have we received any offer that can take Puerto Rico toward [having] a stable economy…. We sincerely hope the proposals made by GO bondholders is not a public-relations trick to confuse the people and distract Congressional leaders from the true task at hand,” she said.

Some lawmakers charged that it is the first time they have heard about the willingness of bondholders to negotiate.

Popular Democratic Party Rep. Luis Vega Ramos said debt moratorium being considered in the Legislature would not stop bondholders from pursuing a debt agreement. He said the bill is merely a measure that would give the governor the needed tools to pursue a moratorium on the debt to prevent a negative impact on essential services.

Vega Ramos, as well as other lawmakers, have said bondholders have been knocking on their doors for months with intentions that “have nothing to do” with wanting to negotiate debt restructuring. Vega Ramos did not say which firms visited his office.

“They wanted to check my stance on bills, but if any of them ever wanted to negotiate, they did not tell me,” he told Caribbean Business. “If they want to negotiate now, then things would be heading in the right direction.”

gdb (1)The GDB, on the other hand, has been pursuing the negotiation of its debt. Meanwhile, hedge funds including Brigade Capital Management and Claren Road Asset Management, which hold some of GDB’s $3.75 billion in debt, asked the U.S. District Court to bar municipalities, public entities and other depositors from withdrawing their funds to prevent a run on the bank amid news of its imminent insolvency.

Creditors of the Public Financing Corp., which was the first agency to default in Puerto Rico’s history, are now saying they want to negotiate their debt, Inter News Service reported.

Ligia Laureano, of Aton Financial, said she plans to group at least 20 percent of the Public Financing Corp.’s bondholders, as required by US Bank Trust National Association, one of the trustees of the debt, to conduct the negotiations. The Public Financing Corp.’s first default was for $58 million, followed by a $1.4 million default in December.

There are other creditors that reportedly want to negotiate their debt with the commonwealth.

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