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Government publishes new offer for GOs

By on May 3, 2017

SAN JUAN – The government of Puerto Rico presented Monday a new debt restructuring offer, individually, to general obligations (GOs) creditors.

The counteroffer reduces to 30% the suggested cut to principal, known as haircut, to the debt guaranteed by the commonwealth’s constitution. The government offered about 50 cents on the dollar in its first proposal.

However, the government has yet to reach an agreement with its creditors. In fact, one of the lawsuits presented Tuesday upon the expiration of Promesa’s stay on litigation was by a group of GOs demanding payment of $245 million in debt service the government has not covered since last summer.

See the offer

Under the latest government offer, the haircut to GOs could decrease to 10% if proposed cash flow bonds are taken into account. This instrument, similar to the growth bonds proposed by the administration of Alejandro Garcia Padilla, would be subject to the government of Puerto Rico collecting more money than it projects under its fiscal plan.

Meanwhile, the offer establishes that GO creditors would have to end the legal dispute with the Sales Tax Financing Corp. (Cofina by its Spanish acronym) bondholders, within the debt service capacity proposed by the government.

Cofina creditors, whose payment is guaranteed by a portion of the sales and use tax (IVU by its Spanish acronym), assure that the money used to pay their debt is not within the government’s reach, as was agreed since its creation in 2006. Meanwhile, some GO creditors argue that the government must use Cofina money to cover its operations and the payment of its constitutional debt.

On Friday, the government published its first restructuring proposal, dated April 24 and named “GO / Cofina Project Estado” which included cuts to principal that could range from a minimum of 52% for GOs, to a maximum of 70% for weaker credits.

At that time, Andrew Rosenberg, a spokesman for the ad hoc group of GO bondholders, said that “the government’s offer is not a credible starting point for negotiation. Within its many mistakes, it is completely based on the fiscal plan of March 13, which violates Promesa.”

Promesa’s stay ended May 1 and it is not yet clear if the fiscal control board will finally begin cases under Title III of the federal law. The latter would maintain the stay amid new legal actions that various groups of creditors have presented.

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