Puerto Rico Bondholders Await Decision on Bankruptcy Mechanism

Register now

Bondholders were still waiting Monday evening to learn whether the Puerto Rico Oversight Board would be filing for a Title III bankruptcy process for the island's debts.

The board had until 4:45 p.m. Monday before creditors would be free to sue on Tuesday morning. The federal District Court for Puerto Rico shut at that time.

Title III is a section of the Puerto Rico Oversight, Management, and Economic Stability Act that lays out a court-supervised bankruptcy process. If it were to be used, a judge would decide how to handle Puerto Rico’s debt.

According to section 305 of PROMESA the judge would have to operate within the revenue and spending assumptions of the board’s fiscal plan, unless the board approved the judge revising the plan.

A source associated with holders of the Puerto Rico Sales Tax Financing Corp. (COFINA) bonds, said on Monday morning that he was unsure if the board was going to file for Title III. While Puerto Rico’s government has talked about seeking the creditors’ forbearance beyond Monday, there was little indication that this was an active idea Monday morning, he said.

“There may be a lot of litigation tomorrow,” the COFINA source said.

If the board didn’t file for Title III, not only would there be new lawsuits but over a dozen existing suits would have their stays lifted.

Neither sources for the board nor for Puerto Rico’s government responded to requests for comment on the Title III decision.

Groups representing holders of COFINA Senior bonds and Puerto Rico general obligation bonds said over the weekend they were rejecting Puerto Rico’s offer in the debt negotiations. These have taken place under the provisions of PROMESA’s Title VI.

The COFINA Seniors Coalition sent out a release saying, “Not only does the proposed plan of adjustment illegally confiscate the entirety of the dedicated sales tax revenues pledged to COFINA’s bondholders, but the [Puerto Rico agency overseeing debt] AAFAF’s first official proposal seeks to coerce COFINA bondholders into accepting the plan of adjustment using a bankruptcy code tactic known as a ‘death trap’ which is not contemplated by Title VI of PROMESA and violates Puerto Rico law.”

The Ad Hoc Group of Puerto Rico GO Bondholders sent out a statement saying, “The commonwealth's proposal is not a credible starting point for negotiations. Among its many flaws, the proposal is based entirely on the March 13 Fiscal Plan, which violates PROMESA and contains many errors and unexplained numbers that creditors have previously highlighted.”

In other Puerto Rico news, there was a widespread strike and numerous demonstrations on the island Monday.

Several demonstrations ended up in front of the new Oversight Board offices in the Hato Rey neighborhood of San Juan. Demonstrators shattered the windows of the Banco Popular branch in the same area as the building housing the board, according to the El Nuevo Día web site.

Late on Friday Puerto Rico released the wording of an apparently final version of the “deal” or Restructuring Support Agreement between the Puerto Rico Electric Power Authority and its creditors. Before the deal goes into effect the Oversight Board would have to approve it as part of Title VI. If this were to happen, the deal would also be dependent on the authority’s bondholders approving the agreement following Title VI’s stipulations.

In yet another piece of Puerto Rico related news, the Government Development Bank for Puerto Rico released the economic activity index for January, February, and March. The March index value was down 2.5% from March 2016 and 0.4% from February 2017.

For reprint and licensing requests for this article, click here.
PROMESA Puerto Rico