Support for restructuring of Puerto Rico’s debt is spreading among politicians and government officials, according to local news media.
On Wednesday the El Vocero web site quoted Puerto Rico Senate President Eduardo Bhatia saying reduction of taxes and increased revenues “will have to be integrated with the restructuring of the government and addressing the problem of restructuring part of the debt.’” On Thursday a journalist from the same organization tweeted that Bhatia, who is in the same party as Governor Alejandro García Padilla, was proposing to negotiate 15% to 20% of the government debt.
El Vocero also quoted San Juan mayor Carmen Yulin Cruz as advocating renegotiating the debt in a Puerto Rico legislature hearing.
"This debt is unpayable,” she said, according to El Vocero. “The question is how much more it will subject the country to an agony of living in an alternative reality different from the present reality. You cannot pay it or cannot pay all of it now."
Such discussions are a “credit negative” for the commonwealth, Moody’s Investors Service said in a release Thursday. The comment by Moody’s vice president Ted Hampton referred to a plan unveiled by three members of the House of Representatives on Monday that would put all Puerto Rico debt on the table for restructuring.
The legislators are proposing an amendment to the constitution to override its requirement that the commonwealth general obligation debt be given first priority in payment.
Denise Perez, a spokeswoman for Puerto Rico’s non-voting member of the U.S. Congress, Pedro Pierluisi, told The Bond Buyer Thursday that this proposed amendment “has virtually no chance of being approved.” She pointed out that two-thirds of each body of the Puerto Rico legislature would have to approve it and then it would have to be passed in a referendum. There have been no amendments to the Puerto Rico constitution since 1970, Perez said.
While the GO debt may be paid in full, Puerto Rico has other forms of debt. The GO debt is only about 19% of all Puerto Rico public sector debt. The commonwealth has other forms of debt supported by the General Fund including appropriation debt and tax and revenue anticipation notes outstanding.
The additional forms of debt are about 3.3% of the public sector's roughly $71.5 billion in debt.
Puerto Rico Sales Tax Corporation (COFINA) debt is about 23.6% of the total public sector debt. The three legislators proposing the debt restructuring specifically mentioned the COFINA debt as being a possible target.
In the Moody’s comment, Hampton said that he expects the Puerto Rico Electric Power Authority’s restructuring will entail bond bondholder losses ranging from 20% to 30%.
