Puerto Rican officials called for consensual restructuring of its debt with its creditors at a meeting Monday in midtown Manhattan.
Melba Acosta Febo, president of the Government Development Bank for Puerto Rico, and two authors of a report that recommended fiscal adjustments, structural reforms and debt restructuring for the commonwealth made their case to about 350 owners of Puerto Rico bonds and their representatives.
Economists Ranjit Teja, Anne Krueger, and Andrew Wolfe, the authors of "Puerto Rico - A Way Forward," said in the report that even after Puerto Rico took recommended revenue and expenditure measures, there would be large financial gaps. These would peak at about $2.5 billion in fiscal 2016 and generally decline to about $0 in fiscal 2024.
As has been found in other debt-adjustment situations, "a contentious drawn-out adjustment process will not be in the interests of Puerto Rico or its creditors," Acosta Febo told the audience of investors. Puerto Rico hopes to have a series of productive conversations with its creditors.
Millstein & Co. chief executive officer Jim Millstein, whose firm is advising Puerto Rico on debt restructuring, said that by coming to its creditors before it has made specific debt alteration plans, Puerto Rico hoped to avoid a lengthy litigation process. "It's our strong hope that you will engage with us in an open and transparent process," he said.
Puerto Rico plans for the modification of debt terms to be done on an issuer-by-issuer basis, Millstein said. The Puerto Rico Electric Power Authority is already deep in a process that may lead to a consensual restructuring of debt, he said.
The Puerto Rico Aqueduct and Sewer Authority should be able to meet its existing debt commitments without modifications, Millstein said.
Acosta Febo said that she would not discuss the commonwealth's approach to particular debts, but that the commonwealth was seeking a "temporary adjustment" in its debt load.
On Thursday the El Vocero news website quoted Jaime Peréllo, president of the Puerto Rico House of Representatives, as saying that the commonwealth will seek a five year extension on its debts. Peréllo is a member of a working group of Puerto Rico leaders deciding on important fiscal steps.
Acosta Febo said the working group will submit its draft plan by Sept. 1.
For Puerto Rico's debt to be repaid its economy must resume growth, Krueger said. For this to happen, there has to be a balance between increased taxes, reduced spending, structural reform of laws, and restructuring of the debt.
Millstein said he hoped that a quick and consensual debt restructuring will allow the commonwealth to borrow again from the capital markets in the near future. He seemed to indicate that that might include short-term borrowing for tax and revenue anticipation notes in the fall or winter.
After the meeting, Acosta Febo released a statement, "Puerto Rico's current financial condition requires honest conversations about the comprehensive solutions needed to grow our economy so we can honor our obligations over the long term, and today's meeting with our investors is the first step in what we hope will be a constructive dialogue to that end."
