Puerto Rico plans to present a debt-restructuring offer in a few weeks to address a projected $13 billion shortfall in bond payments due over the next five years that the commonwealth says it can no longer afford to pay, Bloomberg News reported yesterday. “We’ll be ready with a first proposal as to how to make the $18 billion worth of contractual debt service fit to the available resources we have under this plan,” Jim Millstein, the island’s chief restructuring adviser, said in San Juan, after Governor Alejandro Garcia Padilla’s administration released what they’re calling a fiscal and economic growth plan. Puerto Rico said that it only has $5 billion available for the payments. Prices of some of the commonwealth’s bonds, which have been trading at distressed levels, fell after Puerto Rico made it clear in the proposal that it would seek to force losses on most debt investors. It will also pursue a moratorium on principal payments for several years, according to Melba Acosta, the island’s main debt official. Read more.
In related news, Puerto Rico Governor Alejandro Garcia Padilla wants bondholders to accept less than they’re owed to help the island dig out from its fiscal crisis, but few may be willing to go along, according to Moody’s Investors Service. “It is unlikely that holders of the many Puerto Rico bonds will agree to forgo or defer substantial sums of promised principal and interest,” said Moody’s analyst Ted Hampton. “There is a high probability of protracted litigation, particularly on the part of investors holding general obligation or other securities with strong legal protections.” The expected bondholder response shows the difficulty Puerto Rico faces as it embarks on a restructuring unprecedented in the $3.6 trillion municipal market. Puerto Rico general-obligation bonds are protected by the commonwealth constitution and others are backed by dedicated revenues, which may lead some investors to challenge the island in court. Read more.
For further news and analysis, be sure to visit ABI’s “Puerto Rico in Distress” webpage.
