Puerto Rico proposed a new plan yesterday to restructure its debt, offering some creditors better terms than an earlier plan but falling well short of winning broad support, the New York Times DealBook blog reported. The plan was announced as members of Congress in Washington, D.C., struggled with a momentous decision: whether and how to give Puerto Rico extraordinary powers to wipe out debt. Conservative Republicans have resisted this idea, but major defaults are looming. Last week lawmakers in Puerto Rico stepped up pressure on Congress to act quickly by suddenly authorizing the island’s governor to halt payments on $72 billion in debt. The new restructuring plan covers $49.3 billion of Puerto Rico’s total debt, most of which is in the form of municipal bonds. It calls for creditors to accept $32.6 billion to $37.4 billion up front by exchanging existing bonds for two new classes of bonds. The offer is up from a previous offer of $26.5 billion. Puerto Rico’s Government Development Bank, a crucial part of the local economy, risks defaulting on $422 million in debt payments due May 1, and the island faces $2 billion in payments on debt in July. Read more.
In related news, the mutual-fund company with the biggest stake in Puerto Rico bonds that are almost certain to default on July 1 isn’t worried, Bloomberg News reported yesterday. That’s because Wells Capital Management’s $23 million position in the island’s general-obligation debt is entirely backed by units of bond insurers Assured Guaranty Ltd. and MBIA Inc., which agreed to pay investors if Puerto Rico doesn’t. That guarantee has distanced Wells Capital and other bondholders from a crisis that’s been rapidly unfolding over the past nine months and reached a new pitch last week, when Puerto Rico’s governor signed a law authorizing him to halt payments on much of its $70 billion of debt. As Puerto Rico veers toward a record-setting default, the insurers have created a haven for mutual funds and individuals who sold off much of the island’s uninsured bonds when their ratings were cut to junk, leaving hedge funds and distressed-debt buyers bearing the brunt of the impact. Assured, MBIA’s National Public Finance Guarantee Corp. and Ambac Financial Group Inc. guarantee $27 billion of the U.S. territory’s payments, a pledge that’s kept those bonds holding steady even as the prices of others tumbled. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
