Puerto Rico and U.S. officials are discussing the issuance of a “superbond” possibly administered by the U.S. Treasury Department that would help restructure the commonwealth’s $72 billion of debt, the Wall Street Journal reported today. Under the plan, the Treasury or a designated third party would administer an account holding at least some of the island’s tax collections. Funds in the account would be used to pay holders of the superbond, which would be issued to existing Puerto Rico bondholders in exchange for outstanding debt at a negotiated ratio. Investors would receive less debt, likely taking an effective “haircut” on the value of their holdings, but would have higher expectations for getting repaid. The proposal would mark an important change in Puerto Rico’s relationship with the U.S. government, which has resisted wading into the island’s debt morass. A superbond would need to clear high political hurdles in Washington, D.C., and Puerto Rico to become a reality. Discussions with bondholders over the size of any haircut could present further challenges to reaching a deal. Read more. (Subscription required.)
For the latest developments on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage.
