Puerto Rico to re­lease re­struc­tur­ing plan to­day

The Pak Banker - - BUSINESS -

Puerto Rico of­fi­cials may re­lease de­tails to the pub­lic of a pro­posal to re­struc­ture the com­mon­wealth's $70 bil­lion debt bur­den as soon as Mon­day, ac­cord­ing to three peo­ple with knowl­edge of the dis­cus­sions.

The plan may be re­leased so that bond­hold­ers can par­tic­i­pate in the ne­go­ti­a­tions with­out hav­ing to sign non-dis­clo­sure agree­ments, which limit them from trad­ing the se­cu­ri­ties, said the peo­ple, who asked for anonymity be­cause the talks are pri­vate. Puerto Rico pre­sented fi­nan­cial ad­vis­ers and lawyers for dif­fer­ent in­vestor groups with its debt-re­duc­tion plan on Fri­day, giv­ing those con­sul­tants the first glimpse of the is­land's strat­egy for how to treat the debt.

"This would be a real pro­duc­tive way to al­low ev­ery­one to be in­volved," said Daniel Solender, who man­ages $17 bil­lion of state and lo­cal debt, in­clud­ing Puerto Rico bonds, as head of mu­nic­i­pals at Lord Ab­bett & Co. in Jersey City, New Jersey. "If they re­ally want to ne­go­ti­ate with the firms rep­re­sent­ing the in­di­vid­ual clients, mak­ing it pub­lic is a real pos­i­tive step." Puerto Rico and its agen­cies piled on debt by bor­row­ing for years to fill bud­get deficits. Gov­er­nor Ale­jan­dro Gar­cia Padilla in June said he would seek to re­duce the is­land's obli­ga­tions by ask­ing in­vestors to take losses on their se­cu­ri­ties or wait longer to be re­paid. A Puerto Rico au­thor­ity de­faulted for the first time in Au­gust and the ad­min­is­tra­tion in De­cem­ber be­gan redi­rect­ing rev­enue used to re­pay agency debt to in­stead pay gen­eral-obli­ga­tion bonds, forc­ing a se­cond au­thor­ity to de­fault Jan 4.

Puerto Rico's debt-re­struc­tur­ing pro­posal asks bond­hold­ers to ac­cept lower val­ues for their in­vest­ments in a vol­un­tary debt ex­change, ac­cord­ing to two peo­ple. The is­land's bonds have dif­fer­ent re­pay­ment pledges, with the com­mon­wealth propos­ing to treat each credit sep­a­rately, the two peo­ple said. For ex­am­ple, sub­or­di­nate sales-tax bonds that are re­paid af­ter se­nior salestax debt would have a weaker re­pay­ment plan un­der the com­mon­wealth's pro­posal, ac­cord­ing to the two peo­ple.

The plan in­volves in­vestors swap­ping the se­cu­ri­ties for two dif­fer­ent types of bonds that de­lay pay­ments for a few years. The first would of­fer a fixed rate in 2018 and in­crease to a 5 per­cent in­ter­est rate in 2021, the peo­ple said. The se­cond would sus­pend in­ter­est for 10 years, with the in­ter­est then cal­cu­lated off of the is­land's fi­nances, ac­cord­ing to the peo­ple. The Wall Street Jour­nal re­ported de­tails of the debt-ex­change pro­posal ear­lier. Bar­bara Mor­gan, a spokes­woman who rep­re­sents the Govern­ment De­vel­op­ment Bank at SKDKnicker­bocker in New York, de­clined to com­ment on the Wall Street Jour­nal ar­ti­cle.

"It has been, and re­mains, our com­mit­ment to work with our cred­i­tors to achieve a com­pre­hen­sive set of so­lu­tions to our eco­nomic and fis­cal cri­sis that will en­sure the longterm sta­bil­ity of the com­mon­wealth with­out plac­ing an un­due bur­den on any one party," Gar­cia Padilla said in a state­ment Fri­day.

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