Puerto Rico Gov’t Rejects Backyard Bondholders’ Plan
SAN JUAN — Puerto Rico’s fiscal authorities stated late Tuesday that the government can’t accept the recent debt-restructuring offer made by a group of local bondholders called Bonistas del Patio, or Backyard Bondholders.
“It is not only based on clear calculation errors and unfounded assumptions, but, more importantly, would ultimately harm the people of Puerto Rico in favor of creditors, the vast majority of which are non-residents,” reads a joint statement by the Government Development Bank (GDB) and the island’s new fiscal agent, the P.R. Fiscal Agency & Financial Advisory Authority.
The proposal provides creditors with even higher recovery rates, while falling short of delivering a long-term, sustainable solution to the island’s debt woes, the government says, estimating that the group represents no more than 2% of the $50 billion in public debt it has targeted for restructuring. The administration says it would be happy to negotiate with the local creditor group, “but only if the goal is a restructuring that will actually be beneficial to all of Puerto Rico’s residents, rather than a proposal that just claims to be,” the statement further reads.
Early this week, Backyard Bondholders proposed a five-year postponement of principal payments across credits. It would save the island about $5.8 billion while leaving interest payments untouched, according to the proposal. The group says Puerto Rico’s debt issues stem from a liquidity crisis that prevents the government from fully meeting its debt-service payments.
In its proposal, the bondholder group fails to show how much debt service Puerto Rico would face after the end of the five-year principal holiday, the government notes. “The only way the projected revenues would be sufficient to support the debt burden that Bonistas proposes is by making incredibly optimistic assumptions about economic growth,” the statement reads.
It adds that no attempt was made to explain how to bridge the deficits projected by the creditor group under the proposal released June 27.
“It is left to the reader’s imagination,” the government says, alluding to whether Backyard Bondholders is calling for more austerity measures such as school closings and public payroll cuts.
For its part, Bonistas del Patio believes its plan would allow the government to provide essential services. It delves into the idea of taking cuts on their holdings, but only under certain conditions: the government must release updated, audited financial information for each issuer and prove beyond doubt it can’t meet its debt obligations. Moreover, all public expenses must be restructured along Puerto Rico’s debt.
The latest proposal is one more debt-restructuring plan of the various presented by other creditor groups in the past few months. When turning down those offers, administration officials have noted they fall short of hitting the target of what it believes to be a sustainable debt-service level for the island, based on its projected revenue.
Puerto Rico faces $1.9 billion in debt payments July 1. The governor and U.S. Treasury officials continue to lobby in Congress for swift passage of Promesa, federal legislation that would protect the island from a default’s consequences, they say. The U.S. Senate was expected to vote as soon as Wednesday on the measure.