Saturday, February 22, 2020

Talks on Hold Between P.R. Gov’t, Some Creditor Groups

By on June 21, 2016

La Fortaleza Street in Old San Juan (CB photo/Luis J. Valentín)

La Fortaleza Street in Old San Juan (CB photo/Luis J. Valentín)

SAN JUAN — The Puerto Rico government announced Tuesday it has ended private discussions with certain creditor groups without reaching an agreement on a deal to restructure some of the island’s public debt.

A government statement says commonwealth advisers had recently been negotiating with some groups representing Sales Tax Financing Corp. (Cofina by its Spanish acronym) and general obligation (GO) bondholders who entered into nondisclosure agreements (NDAs) to discuss the Alejandro García Padilla administration’s latest debt-restructuring offer. The latter was presented June 14, according to the statement.

After going back and forth over several counterproposals made by the Cofina and GO creditor groups, sides failed to reach an agreement, “and they are no longer continuing discussions on a non-public basis with respect to the [government’s] proposal or any counterproposals,”  the statement reads.

The García Padilla administration insists on solving the island’s debt problem through a broad debt-restructuring deal that would target $50 billion worth of Puerto Rico’s debt. More than $1.5 billion in debt-service payments hit the commonwealth on July 1, and officials continue to warn there is not enough cash to meet the debt obligations in full while ensuring essential services to citizens. 

Following the end of the nondisclosure period, details about the proposals discussed by advisers of the Puerto Rico government and certain creditor groups were released.

The government would no longer insist on using the “superbond”—the financing structure through which it first proposed to undertake the restructuring. When compared with its previous proposal, it eliminates the use of capital appreciation bonds and increases interest payments by $1 billion within the first four years.

As for reductions to principal, commonwealth advisers are now offering GO and Cofina senior creditors recovery rates that hover at about 80%, and at 60% for Cofina subordinates.

Puerto Rico is no longer calling for new money. Instead, Cofina creditors are being asked to allow the administration to use its pledged revenues for the first half of fiscal year 2017, which begins July 1, to support the government’s cash needs.

It keeps the five-year holiday on principal payments, and the 15% target of government revenue that would go to cover debt service each year, or roughly $1.85 billion beginning in 2021 and slightly increasing to about $2 billion through 2071. The commonwealth would pay $631 million in fiscal 2017, $1.1 billion in fiscal 2018, $1.3 billion in fiscal 2019 and $1.7 billion in fiscal 2020.

In their counterproposals, while agreeing with some of the terms offered by the government, the GO and Cofina groups called for higher recovery rates, among a range of other concessions that seek to protect each one’s paper.

All sides agreed that, if approved in Congress, any debt-restructuring deal would be carried out through the Puerto Rico Oversight, Management & Economic Stability Act’s (Promesa) Title VI (collective action) or Title III (court-ordered process).


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