P. Rico bondholders skeptical of debt plan
NEW YORK (Reuters) – Groups of Puerto Rico’s creditors issued a rare joint letter late on Monday opposing a plan designed to steer the island out of financial crisis, stoking friction between the US territory, its investors and the board tasked with managing its finances.
In a letter to the federally appointed oversight board, creditors with exposure to $12 billion in Puerto Rican debt said the turnaround plan, approved by the board on March 13, violates the Puerto Rico financial rescue law known as PROMESA by ignoring legal protections on some public debt.
The letter was signed by holders of constitutionally guaranteed general obligation debt; a group holding junior COFINA debt backed by sales tax revenue; and Assured Guaranty Corp, which insures $3.4b. of Puerto Rican bonds.
The plan “simply ignores one of the enumerated requirements that Congress imposed” under PROMESA, “namely, that it respect the relative lawful priorities” of debt, the letter said.
With Puerto Rico trying to restructure its debt before the May 1 expiration of PROMESA’s freeze on litigation, the letter illustrates a wide gulf between both sides.
Although Puerto Rico’s relationship with bondholders has always been rocky, Monday’s letter also pits creditors against the oversight board, a bipartisan group appointed last year to help facilitate restructuring talks and oversee the island’s finances.
Puerto Rico faces $70b. in debt, a 45% poverty rate and rampant emigration. The turnaround plan green-lighted by the board contemplates only $800 million a year to pay debt – a fraction of what the island owes – even after imposing strict austerity measures.
In Monday’s letter, creditors said the plan runs afoul of PROMESA by prioritizing government services ahead of General Obligation debt in violation of the island’s constitution. COFINA creditors said it would also unlawfully transfer sales tax revenue, on which they have a lien, into the island’s general fund.
The plan “contains many unexplained numbers and assumptions that creditors need to understand before meaningful negotiations can occur,” the stakeholders said. They added that the plan will “undermine” Puerto Rico’s efforts to regain access to capital markets.