Puerto Rico's oversight board announces new debt restructuring deal

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The Puerto Rico Oversight Board announced a new debt restructuring deal offering recoveries calculated as of the time of the bankruptcy petitions of between 65.4% and 74.9% for general obligation bonds, 72.2% and 77.6% for Public Building Authority bonds, and as little as 3% for Employees Retirement System bonds.

The board announced the deal Sunday evening.

Puerto Rico Governor Wanda Vazquez signing a document
Puerto Rico Gov. Wanda Vázquez, right, said she opposed the central government bond deal.

On Sunday, Gov. Wanda Vázquez, who had supported a September agreement with the bondholders, said she opposed the new agreement. She said the board had given the bondholders an improved agreement and therefore the board should have given pensioners a better agreement. The treatment of pensioners is unchanged in the new agreement.

The new agreement has the support of about $8 billion of bondholders, according to the board. This compares to about $3 billion of the bondholders who supported the September agreement.

The restructured commonwealth debt would mature no later than 20 years from now, compared to the 30 years term in the September agreement.

If the new deal goes forward, the GO, PBA, and ERS bondholders would get $10.67 billion of new bonds and $3.81 billion of cash. The new bonds would consist of 50% of GO bonds and 50% of Puerto Rico Sales Tax Financing Corp. (COFINA) subordinate bonds.

The true-interest cost of the deal would be reduced to 5.548% in the new deal from the 5.716% in the old deal.

“The new and more favorable agreement is a win for Puerto Rico,” Oversight Board Chairman José Carrión said in a statement. “It lowers total debt payments relative to the agreement we reached last year, pays off Commonwealth debt sooner, and has significantly more support from bondholders, further facilitating Puerto Rico’s exit from the bankruptcy that has stretched over three years.”

The board says the new agreement reduces $35 billion of debt and other liabilities to less than $11 billion.

In the new deal, holders of recently issued PBA and GO bonds would get lower payouts than holders of pre-2012 issued bonds. However, the board is no longer threatening them with getting nothing, as it had threatened in the earlier deal.

“The Oversight Board will continue to challenge other bond issuances, including bonds issued by the Employee Retirement System, as well as seek recovery of fees earned by the banks, law firms and other parties earned when they helped issue bonds in excess of Puerto Rico’s constitutional debt limit,” the board said in a written statement.

James Spiotto, managing director at Chapman Strategic Advisors, said the deal showed the sides were “making progress,” since a greater portion of the bondholders support the current deal as compared to the earlier one.

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PROMESA Commonwealth of Puerto Rico Puerto Rico Public Buildings Authority Puerto Rico Employees Retirement System Puerto Rico Bankruptcy