Publisher’s Letter

Dear Readers:

Much to my dismay, the process of restructuring Puerto Rico’s debt is moving toward what I believe is a disastrous path for local bondholders and for the economy as a whole. This issue, which I submit needs to be understood by all Puerto Ricans, causes me to address you as Publisher of Caribbean Business, something that I had hoped to significantly limit or avoid altogether. The situation, as I see it, is that local bondholders have been placed at the bottom of the structuring pyramid so that the offer they will receive consists of a near wipeout of their investments.

The restructuring, apart from the disastrous effect on their individual financial well-being, is also devastating to the Puerto Rican economy, at a time when we have been suffering from a 10-year recession. Assuming local bondholders still hold $15 billion in local bonds (from an estimate of $22 billion held until 2014-2015) and they received but 40% of their principal, this loss of principal equates to $9 billion in real losses, as distinct from the present paper losses, which by themselves are caused by the ongoing bad publicity on Puerto Rico’s fiscal woes.

The loss of current interest payments is also a crucial matter not being given appropriate weight. At 5% average coupon, the foregone income proposed erases $750 million of income from the bondholders’ pockets with the concomitant effects on the economy itself.

There are other ways to restructure Puerto Rico’s fiscal black hole so bondholders do not assume the main burden of getting Puerto Rico back on its feet and, thus, not suffer their investments going by the wayside.

All constituents involved need to shoulder this Puerto Rico problem, that is the taxpayers, the pension plans, the government and the bondholders, plus those individual government entities that are being rescued.

Overall, the proposal being promoted is disastrous for Puerto Rico investors, who believed in their country and put their money where their hearts were.

*Holds a portfolio of Puerto Rico bonds

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