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Puerto Rico Briefs Creditors on its New Debt Restructuring Plan

By on January 29, 2016

SAN JUAN- On Friday, Puerto Rico government advisers presented to representatives of different creditor groups their latest plan to restructure a large chunk of the island’s $70 billion debt load.

A source told Caribbean Business the commonwealth government intends to make the plan public on Monday.

“We believe today’s meetings were an important first step in what we hope will continue to be a mutually respectful negotiation process. We believe the proposal we presented is fair, balanced and reflective of the Commonwealth’s actual capacity to pay our creditors over the long term, and we will be scheduling additional meetings to continue these discussions in the coming weeks,” the government’s fiscal team stated late Friday.

In a statement released late Thursday by La Fortaleza, Gov. Alejandro García Padilla said he had instructed his fiscal team to present creditors with his administration’s voluntary debt-exchange proposal. It would include two new types of bonds and a short-term moratorium on debt payments, two sources confirmed to Caribbean Business.  

A total of six meetings between commonwealth advisers and representatives of the largest tax-supported credits were held Friday and included the participation of local and U.S. mainland mutual funds, cooperatives, hedge funds and monoline insurers, the commonwealth government said Friday.

An update to the administration’s long-term Fiscal & Economic Growth Plan (FEGP) — which now reflects worse than expected fiscal and economic woes for the island — prompted a revision to the commonwealth’s previously presented debt-exchange proposal. In November, government officials announced a “superbond” proposal, whereby bondholders would exchange their existing commonwealth paper into a new, more secure security, taking into consideration the legal priority of each type of commonwealth debt.

Based on the previously presented plan, the commonwealth is now proposing to creditors that they exchange their existing bonds for two new types of security. The Wall Street Journal (WSJ) reported Thursday, citing a source, that the deal would allow the commonwealth to delay debt service payments until at least 2018, providing the island with time to finish its fiscal fixes and return to economic growth. Bondholders would take as much as a 45% haircut on principal, Reuters reported Friday citing sources.

“It is our every intent to protect the integrity of the process, and as such, we do not plan to negotiate the terms of our proposal publicly,” the governor stated late Thursday.

Although creditors were recently briefed on the revised FEGP, debt-restructuring talks between the commonwealth and its creditors resumed on Friday, as previously anticipated by Caribbean Business, after weeks of uncertainty on when exactly all sides would sit down again at the negotiation table. Some creditor groups had recently argued that the commonwealth government has cancelled previously scheduled meetings and has dragged its feet on the matter ever since talks were held late last year.

García Padilla continues to urge Congress to provide Puerto Rico with access to a debt-restructuring regime, “to avoid a disorderly and litigious process that will harm all of our stakeholders.” The commonwealth is banking on congressional action during the first quarter of the year as it tries to avoid additional defaults amid a steeper debt-service schedule that begins this summer.

“Reaching a resolution is in large part contingent upon a continuation of federal funding for Puerto Rico, particularly with respect to healthcare. And in the event a very high participation level is not achieved, an effective restructuring regime will be necessary,” the government further stated Friday.

On Thursday, the governor had stated that it will be “extremely challenging to reach a resolution with multiple issuers without access to a legal [debt-restructuring] framework.”

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