Puerto Rico's federally appointed financial oversight board scheduled mediation in debt restructuring talks between the U.S. territory's general obligation bondholders and holders of its so-called COFINA debt, which is backed by sales tax revenue, the board said in a letter to the creditors on Thursday, Reuters reported on Friday. The letter, which was not public but was obtained by Reuters, said former bankruptcy Judge Allan Gropper would serve as mediator in the talks, which will run from April 10-13 in New York. Read more.
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As the debt started piling up and Puerto Rican leaders started getting desperate, commonwealth officials started making bigger and bigger promises to prospective bondholders, according to a Washington Examiner commentary today. And these same leaders kept recklessly spending money they were never going to have while retirees took out more than $1 billion in loans, leaving the retirement system with personal loans to retirees representing around half of its total assets. Puerto Rico's debt isn't like one credit card bill that refuses to go away: it's spread out over many creditor classes, it was purchased at different times, it was purchased under different agreements, and a lot of competing interests have stakes in it. Debt restructuring shouldn't be arbitrary; it should be rational and reasoned with an understanding that future bondholders are looking, according to the commentary. The PROMESA Oversight Board should consider the island's debt load in total, not piecemeal and arbitrarily, to solve Puerto Rico's immediate problems.
When Puerto Rico struck a deal more than a year ago to cut the government electric company’s $9 billion debt, one group was spared the hit: bond insurers, whose guarantees the island needed to win back the faith of investors, Bloomberg News reported yesterday. That agreement and the precedent it set are now at risk as Governor Ricardo Rossello threatens to use the bankruptcy-like powers the U.S. has since given the territory to seek additional concessions from MBIA Inc. and Assured Guaranty Ltd. That’s triggered a decline in bond insurers’ shares over speculation about the scale of the losses they face as Puerto Rico moves toward the bigger effort to slash its entire $70 billion debt. “For an outsider coming in, like the governor, it probably doesn’t seem to him like the people of Puerto Rico got the best deal here,” said Chas Tyson, an analyst with Keefe, Bruyette & Woods. The push to reopen the Puerto Rico Electric Power Authority’s December 2015 agreement — the only one that the island has reached — marks an opening salvo in Rossello’s effort to pull the government out of a crisis that’s promising to impose deep losses on bondholders, who snapped up the territory’s high-yielding debt for years even as the economy contracted. Puerto Rico has already defaulted on a major swath of its debt and the fiscal recovery plan approved this month by U.S. financial overseers would cover less than a quarter of what it owes between 2018 and 2026, assuming the government can accomplish its goals of cutting spending and raising revenue.
Creditors of Puerto Rico's struggling power authority, PREPA, have presented the island's government with a counter-offer to restructure the utility's $8.9 billion in debt, Reuters reported yesterday. The U.S. territory's government was planning to review the plan ahead of a Friday deadline to finalize a restructuring deal at the utility.
Groups of Puerto Rico's creditors issued a rare joint letter late on Monday opposing a plan designed to steer the island out of financial crisis, stoking friction between the U.S. territory, its investors and the board tasked with managing its finances, Reuters reported yesterday. In a letter to the federally appointed oversight board, creditors with exposure to $12 billion in Puerto Rican debt said the turnaround plan, approved by the board on March 13, violates the Puerto Rico financial rescue law known as PROMESA by ignoring legal protections on some public debt. The letter was signed by holders of constitutionally guaranteed general obligation (GO) debt; a group holding junior COFINA debt backed by sales tax revenue; and Assured Guaranty Corp, which insures $3.4 billion of Puerto Rican bonds. Lawyers representing the UBS Family of Funds and the Puerto Rico Family of Funds said yesterday that their clients, who hold roughly $652 million in accreted value of COFINA bonds, "strongly share and support many of the objections and concerns" stated in the bondholders' letter to the oversight board. The plan “simply ignores one of the enumerated requirements that Congress imposed” under PROMESA, “namely, that it respect the relative lawful priorities” of debt, the letter said.
Puerto Rico’s U.S. overseers threw support behind Governor Ricardo Rossello’s push for deeper concessions in the electric utility’s debt-cutting agreement, setting up a clash with creditors who said it jeopardizes the broader effort to restructure the territory’s $70 billion debt, Bloomberg News reported yesterday. Speaking before a House Natural Resources Committee hearing yesterday, Ana Matosantos, a member of the federal board tasked with helping Puerto Rico end its fiscal crisis, said that the panel would approve revisions to the 15-month-old deal if the governor presented it to them. Rossello, who took office in January, said that he’s concerned about the effect the current accord will have on residents’ bills. Read more.
Puerto Rico Electric Power Authority, the island's ailing power utility, yesterday reopened a long-agreed debt restructuring deal that drew ire from bondholders and put the stock of credit insurers under further selling pressure, Reuters reported. The new restructuring proposal alters the 15 percent reduction in creditor principal, removes the requirement for an investment grade credit rating on restructured debt and decreases the size of a reserve fund put in place to insure payments are made on the bonds. "That (investment grade) was never a realistic ask. I would love to say that we would have investment grade bonds, but it is just not true," said Elias Sanchez, an official in Governor Ricardo Rossello's office. In 2015, PREPA hammered out a restructuring deal with creditors that was seen as a potential roadmap for a broader restructuring of the U.S. commonwealth's crippling $70 billion debt load. PREPA alone has more than $8 billion in debt to restructure. Under the new deal, 80 percent of the original debt would move into securitization bonds backed by a dedicated charge on customer bills. Read more.
In related news, the House Committee on Natural Resources will hold an oversight hearing at 10 a.m. ET today on the status of the Puerto Rico Electric Power Authority (PREPA) Restructuring Support Agreement. Click here for the witness list and prepared hearing materials.
Additionally, Puerto Rico's governor proposed measures on Monday to reduce anticipated budget cuts at the University of Puerto Rico to $241 million by fiscal year 2021, from $450 million approved by the struggling U.S. territory's fiscal oversight board, Reuters reported. The measures, outlined by Governor Ricardo Rossello in a letter to the board, include transferring to the university some of the savings generated by upcoming cuts to healthcare spending; allowing the university to earn revenue by training public employees; and working with the island's Science and Technology Trust to monetize the university's patents, which UPR has historically struggled to do. The school's fate is a sensitive issue locally, with student groups threatening strikes over the cuts. UPR's budget has already been slashed by $348 million over the last three fiscal years, according to Rossello's letter. Read more.
Puerto Rico's benchmark government bond slumped to an all-time low on Monday after competing groups of bondholders stepped up their legal battle over who should be paid first out of a smaller-than-expected pool of cash, Reuters reported yesterday. Benchmark Puerto Rico general obligation (GO) debt maturing in 2035 and carrying an 8 percent coupon, fell 5.15 points in price to 61.35 on Monday, according to Thomson Reuters data. The U.S. commonwealth is in the midst of trying to pull itself out of a financial quagmire that leaves it with $70 billion in debt it cannot pay without a massive restructuring. The debt, which has been in default since last year when the U.S. Congress passed a rescue law known as PROMESA that suspended debt payments, has dropped 11.4 points in price since a new fiscal rescue plan was accepted on March 13. Defaulted debt trades more like an equity and is not typically quoted with a yield. Investor sentiment turned more negative when so-called COFINA bondholders, whose debt is backed by sales tax revenue, asked a federal judge in San Juan on Sunday to deny the GO bondholder group's effort to stop the island's government from making payments on COFINA debt. Read more.
In related news, the House Committee on Natural Resources tomorrow at 10 a.m. ET will hold an oversight hearing on the status of the Puerto Rico Electric Power Authority (PREPA) Restructuring Support Agreement. Click here for the witness list and prepared hearing materials.
A new fiscal plan that leaves the Puerto Rico with less money to cover its debts pushed the value of certain bonds down as much as 9 percent last week through Thursday, according to Municipal Securities Rulemaking Board data, the Wall Street Journal reported. The market value of that $14 billion has dropped to $8 billion as Puerto Rico’s financial condition worsened over time, according to the most recent information available from Morningstar. The lower value doesn’t necessarily equate to $6 billion in losses because the funds could have purchased the bonds at any time over the past several years as the value dropped. Puerto Rico Gov. Ricardo Rossello had initially proposed earmarking about $1.2 billion a year for debt repayment over the next decade. But the fiscal control board that Congress created to oversee a debt restructuring required him to revise his economic forecasts downward. That left about $800 million for annual debt service.
