Puerto Rico moved closer to resolving the largest municipal-debt default in U.S. history after creditors owed roughly $11.7 billion backed a settlement framework, the most Wall Street support yet amassed for a restructuring of the territory’s core public debts, the Wall Street Journal reported. The proposed settlement released today would reduce roughly $18.8 billion in general obligation debt to roughly $7.4 billion, lowering interest payments to bondholders to levels that Puerto Rico’s financial supervisors believes it can support after years of population loss and economic decline. Some bonds covered by the deal have gained value in recent months, buoyed by fixed-income investors’ appetite for high-yielding municipal debt and expectations that Puerto Rico’s court-supervised bankruptcy is nearing its end. The agreement marks the culmination of months of private talks between finance officials and creditors to assess the long-term damage to Puerto Rico’s economy stemming from Covid-19. Investment firms that participate would exchange their claims for a mix of cash, restructured bonds and tradable securities known as contingent value instruments that only pay out if sales-tax collections exceed certain projections. A sustained rally in high-yield municipal bonds, including Puerto Rico’s, helped to ease the deal, according to bondholders and advisers involved in negotiations. Yield-hungry investors have been drawn to risky municipal bonds in part due to the U.S. Federal Reserve’s commitment to ultralow rates. Also fueling the rally are expectations that federal support for Puerto Rico will increase with the White House and both houses of Congress under Democratic control, according to analysts and investors.
