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Local Bondholder Group Shows Full Support to Promesa

By on June 1, 2016

SAN JUAN — A local group of Puerto Rico bondholders has reiterated on Wednesday their support to the proposed federal legislation that seeks to tackle the island’s debt woes by providing access to an orderly restructuring mechanism, while establishing strong, independent fiscal oversight.

“We want to recover our investments and savings that we lent in good faith to the Puerto Rico government throughout time. But as Puerto Ricans, we want this to be done in a fair and orderly manner without bringing more uncertainty and panic to the people,” said Jorge Irizarry, executive director of Backyard Bondholders (“Bonistas del Patio” in Spanish), a creditor group that consists of Puerto Rico residents who own commonwealth bonds.

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.

“That is why we repudiate the opposition of vulture funds and politicians against the fiscal board,” he said, in reference to the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), or HR 5278.

After several setbacks, the bill cleared the House Natural Resources Committee last week, and now awaits a vote on the lower chamber’s floor. With about four weeks before roughly $1.5 billion in debt payments hit the commonwealth, it is yet unclear whether the proposed legislation would be able to secure passage in both chambers before July 1.

“If Promesa is not approved, there will be chaos after July 1,” Irizarry told reporters in San Juan, highlighting the need of pending proposals concerning a temporary legal stay, a congressional committee that would study economic development initiatives, and the board’s role in achieving an orderly debt-restructuring process as well as validating voluntary accords.

He conceded there is no certainty as to when or if the bill would be finally approved in Congress, but noted that if it clears the lower chamber by July 1, creditors could choose to wait and see what happens, instead of suing the government immediately.

As for debt-restructuring talks with the Alejandro García Padilla administration, Irizarry said the local creditor group is about to enter into nondisclosure agreements (NDAs) with administration officials, which would give them access to additional financial information only available to those who have signed said NDAs.

“There haven’t been good faith negotiations,” he stressed, adding that very little has been accomplished through voluntary talks during the past two years.

Meanwhile, Backyard Bondholders would be soon presenting a debt-restructuring proposal to commonwealth advisers, which would treat each credit separately, according to Irizarry. Reductions to principal, or haircuts, are being analyzed as part of their offer.

“We are working on a proposal that gives flexibility. I expect it to be ready by July 1,” he said, while adding that the group has already met with government officials and advisers.

He went on to say that the group is against the haircuts being proposed by the commonwealth on their debt-restructuring proposal, which they believe to be unjustified. Moreover, the group doesn’t support the superbond structure being pushed by commonwealth advisers, whereby the island’s different credits are streamlined into a single “currency” by pooling in the various revenue sources that secure the repayment of existing credits.

According to the group, it represents more than 60,000 Puerto Ricans who hold all types of commonwealth bonds, totaling more than $14 billion in principal of the island’s $70 billion municipal debt. These bondholders are also expecting roughly $800 million in interest payments annually.   

Irizarry lamented how most Puerto Rican bondholders own weaker commonwealth credits, such as the Government Development Bank and Public Finance Corp., both of which have already defaulted on their debt obligations. He further noted how local bondholders mostly acquired their paper at par, and not when bond prices were on free-fall.

“We want to see Puerto Rico regaining economic stability and access to capital markets,” Irizarry said, adding that Promesa would pave the way for such a scenario to take place. Failure to achieve the proposed federal legislation could result in a scenario worse than Argentina, where holdout creditors kept the country in crisis for almost 15 years, according to the local bondholder group.

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