Puerto Rico's government moved forward in its bid to restructure some $70 billion of public bonds, offering a voluntary debt exchange to bondholders Friday in a meeting in New York City.
Government Development Bank for Puerto Rico President Melba Acosta Febo had said in December that Puerto Rico would propose a restructuring of its debt to its creditors before the end of January, and Puerto Rico Gov. Alejandro García Padilla confirmed Thursday night that his government would propose a debt exchange on Friday to its creditors.
Friday's meeting in New York City was closed to the press. While some reports of the offer leaked to the press, participants signed non-disclosure agreements to participate.
The Wall Street Journal said Puerto Rico was seeking to exchange its debt for two new types of securities. In one all interest and principal payments would be suspended for five years. After resuming in 2018, interest would ramp up to 5% in 2021. In the other security type, payments would start in 2021 and would be dependent on government revenues doing better than current projections. In the second security type bondholders would get up to 25% annually of revenues that exceed current projections.
All bondholders would get both forms of bonds. The value of the second type would be equal to the amount of impairment on the first type.
Haircuts for bondholders would depend on what type of bond they held, according the El Vocero news website. Those with general obligation bonds would be given smaller haircuts than those holding other sorts of bonds – that is, their bonds would be less impaired.
A wide variety of revenue sources would be pooled to pay about $3 billion a year in interest and principal starting in 2018, according to El Vocero.
A prominent Puerto Rico legislator said observers shouldn't place too much importance on these initial debt proposals.
The administration Gov. García Padilla has an extensive history of proposing something to debt market participants and then sending bills with something different to Puerto Rico's legislature, said President of Puerto Rico House of Representatives Treasury and Finance Committee Rafael "Tatito" Hernández Montañez.
Hernández Montañez is a member of the Popular Democratic Party with García Padilla.
Furthermore, when the legislature gets bills it nearly always amends them, Hernández Montañez said. "The devil is in the details," he said.
Hernández Montañez said he was unfamiliar with the proposal Puerto Rico made to creditors Friday in New York City.
After The Journal story appeared, García Padilla released a statement that said, "Our government has taken action through the implementation of the Fiscal and Economic Growth Plan, which includes measures to increase revenues, reduce expenses and streamline our operations. But we cannot do this alone."
"I have instructed our team and our advisors to present to our creditors' advisors the commonwealth's proposal for a voluntary debt exchange," García Padilla said. "Notwithstanding our good faith to reach a consensual solution, it will be extremely challenging to reach a resolution with multiple issuers without access to a legal framework to implement the restructuring of our unsustainable debt."
