Puerto Rico Board Unveils $35 Billion Bankruptcy-Exit Framework
June 16 2019 - 8:23PM
Dow Jones News
By Andrew Scurria
Puerto Rico's financial supervisors struck a deal with creditors
owed $3 billion that sets out a path for restructuring $35 billion
in debt obligations tied to the central government and scaling back
debt payments over the next 30 years by half.
The U.S. territory's oversight board said the agreement marks an
acknowledgment by bondholders "that Puerto Rico's difficult
financial situation requires a meaningful reduction in its debt
burden to a sustainable level."
The proposed settlement, announced Sunday, covers $18 billion in
bonds that were guaranteed with Puerto Rico's full faith and
credit, including the largest junk-rated sale of municipal debt
ever, a $3.5 billion issuance in 2014.
The board said it would submit a debt-adjustment plan in Puerto
Rico's court-supervised bankruptcy for approval within 30 days,
foreshadowing a potential high-stakes battle over repayment
terms.
Gov. Ricardo Rosselló's top finance adviser, Christian Sobrino,
said the government doesn't support the proposal because it is
premised on a fiscal plan that cuts pension benefits.
The proposal takes advantage of legal arguments that bonds sold
since 2012 pushed Puerto Rico's debt load above the ceilings
contained in its constitution and therefore shouldn't be paid
back.
Investors holding general-obligation bonds that have been
challenged could settle their claims for between 35 and 45 cents on
the dollar, or they can continue litigating for more after Puerto
Rico exits bankruptcy.
General-obligation bondholders whose claims aren't in dispute
would receive at least 64 cents on the dollar and potentially more
depending on the outcome of the postbankruptcy litigation.
Susheel Kirpalani, a lawyer representing hedge funds that signed
on to the agreement, said it provides bondholders "the opportunity
to realize equitable recoveries based on their relative priority
and rights."
Other government claimants, such as suppliers and lower-ranking
unsecured creditors, would recover 9 cents on the dollar.
"These were tough negotiations and we are confident we reached
the best deal possible for Puerto Rico to move on from decades of
incurring debt we could not afford," the board's executive
director, Natalie Jaresko, said.
The proposal must still be voted on by creditors and approved by
the judge overseeing Puerto Rico's bankruptcy to take effect. It
would reduce principal and interest payments on Puerto Rico's
full-faith-and-credit bonds over the next three decades to $21
billion from $43 billion. Creditors would receive $12 billion in
restructured debt and $2 billion in cash.
By driving down debt claims, the board is hoping to free up
money for investment in dilapidated infrastructure and to entice
private capital back to Puerto Rico, which was devastated by two
hurricanes in 2017.
Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
June 16, 2019 20:08 ET (00:08 GMT)
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