Bondholder Group with $17.3B in Puerto Rico Debt Proposes Debt Restructuring Plan

The Puerto Rico Sales Tax Financing Corporation (COFINA) has submitted a plan to restructure the financially beleaguered island’s debt. COFINA, which is comprised of investors who possess debt backed by sales-tax revenues, has issued $17.3 billion in Puerto Rico debt-$7.5 billion in senior debt and $9.7 billion in second lien debt.

COFINA’s proposal is in response to another plan submitted by the island’s development bank earlier this month. With its proposed plan, COFINA is asking Puerto Rico to suspend repayments to members of the bondholder group until 2018, when payments would steadily grow to at least $600 million by 2021.

In exchange for the delayed payment, the bondholders are asking for the preservation of the notes’ tax-backed guarantee. Already, COFINA’s payments due this fiscal year have been put aside with its bond trustee.

The bondholder’s group includes creditors such as Whitebox Advisors, Metropolitan Life Insurance and Golden Tree Asset Management. The bondholder group believes that delaying repayments for two years should give the island time to recover financially.

Puerto Rico’s debt exchange proposal involves the offer to exchange existing bonds for two new kinds of securities to help the island achieve debt relief. The two debt classes would also delay payments, with one to pay a 5% interest at some point while the other would hold a value to be determined by the Commonwealth’s financial health. A source told The Wall Street Journal that bondholders would be offered amounts of the first class of debt according to their holdings’ legal priority. To compensate for the difference between that figure and their bonds’ face value, investors would be given enough of the second class of debt to make up for the difference.

Interest payments for the first class would start in 2018 with a 5% rise in 2012. Principal would be due in five years. Second class payments could start in 10 years, with creditors getting up to 25% yearly of commonwealth revenue exceeding present projections.

In total, Puerto Rico is attempting to restructure approximately $70 billion of municipal bonds, which is how much debt it owes. Its government is asking U.S. lawmakers to grant the Commonwealth the ability to establish a debt-restructuring authority.

Last week, the island announced that according to new estimates, Puerto Rico is about $16 billion short of how much it needs to repay debts for the next five years. The territory’s debt crisis is taking a toll on the island’s residents, with utility bills at three times the price of electricity and water bills compared to on the mainland, the country’s highest sales tax, a 45% poverty rate, and a 12.2% unemployment rate. According to Vice News, about 84,000 people are moving away from the island ever year in the wake of the financial and economic difficulties there. US Congressional members have projected that the territory’s debt would go up by another $27 billion in the next five years.

In Puerto Rico and the US mainland, our Puerto Rico muni bond fraud lawyers are working with investors to recoup their losses brought on by investing in bonds that were sold to them by UBS Puerto Rico (UBS), Banco Santander (SAN), Banco Popular, and other brokerage firms. Many investors have sustained significant losses for buying these risky investments.

Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

 

 

Puerto Rico Bondholders Put Forward Their Own Restructuring Plan, WSJ, February 10, 2016