Puerto Rico gov’t releases offer to creditors
Just before midnight, on Friday, the new government of Puerto Rico published its first official debt-restructuring offer, which it put on the table during negotiations recently held with different groups of creditors.
The administration of Gov. Ricardo Rosselló’s proposal—dated April 24 and named “GO / Cofina Project Estado”— includes haircuts of that would range from 48 cents for each dollar on general obligations (GOs), to a maximum of 70 cents for weaker credits, such as the Highways & Transportation Authority (HTA), the Convention Center District Authority (CCDA), the Metropolitan Bus Authority (MBA) and the Infrastructure Finance Authority (Prifa) .
However, a new contingency instrument is proposed—similar to growth bonds proposed by the administration of Alejandro García Padilla—that would seek to reduce losses for these creditors, although subject to the government of Puerto Rico collecting more money than projected under its certified fiscal plan.
In the case of Sales Tax Financing Corp. (Cofina by its Spanish acronym) bondholders, the proposed haircut hovers around 60 cents. If they reject the adjustment plan proposed by the government, they would only receive $450 million in short-term notes, which would only be available to senior Cofina bondholders. Under the first option, both types of Cofina bondholders—senior and junior—would be treated pari passu, or in equal terms. A significant amount of Cofina subs are held by local investors.
The government’s proposal was prepared by advisers Rothschild & Co., O’Melveny and Bank of America-Merrill Lynch.
Government officials said earlier Friday that negotiations continue with various groups of creditors, aiming at striking some sort of consensual agreement under Title VI of Promesa. The proposal was part of negotiations held this week in New York City and, so far, has not had the backing of creditors, according to Caribbean Business sources.
Meanwhile, Promesa’s stay ends May 1, and it is still unknown whether the fiscal control board will decide to file cases under Title III of the federal law to maintain the stay on litigation.
Three types of instruments
The offer proposes three types of new instruments, which would serve as vehicles for the exchange through which debt restructuring would materialize.
“Senior bonds” top the list, as these would carry a constitutional guarantee, while most of them would be tax exempt. The total amount to be issued would be around $16.75 billion and would be paid over a period of 30 years. It would not be until 2028 that the government would initiate payments on principal of these bonds.
In a bid to sweeten the deal, the government proposes “cash flow bonds,” the payment of which will depend on the government’s excess cash once it covers senior bonds, future issuances of GOs and its operating expenses, as established by its certified fiscal plan.
A senior cash flow bond tranche—which could be tax exempt— would only be available to GOs and Cofina bondholders. About $8 billion would be issued for these bonds.
Finally, about $2 billion would be issued for a junior or subordinated category of cash flow bonds, which would be distributed to HTA, Prida, CCDA and MBA bondholders. These bonds would not be tax exempt.