Puerto Rico bondholders reject restructuring offer

Bloomberg

Puerto Rico bondholders rejected Governor Ricardo Rossello’s debt-restructuring proposal days before a May 1 deadline to craft a deal or face a potential wave of creditor lawsuits.
The Caribbean island is offering holders of its general-obligation bonds 77 cents on the dollar while proposing 58 cents on the dollar for its sales-tax debt, according to the commonwealth’s latest creditor proposal, dated April 24 and posted at midnight Saturday on the Municipal Securities Rulemaking Board’s website, called EMMA.
The cash-strapped commonwealth is negotiating with its investors and has until Monday night to reach a restructuring accord, otherwise a legal stay that shields the island from creditor lawsuits expires. Absent a restructuring deal or an agreement to suspend legal claims, Puerto Rico may face potentially adverse rulings on cases already filed, as well as new legal challenges.
Puerto Rico is seeking to reduce its $70 billion debt load after years of economic decline and overspending. It would be the largest restructuring in the $3.8 trillion municipal-bond market. The island is operating under a federal oversight board that has the ability to seek creditor losses through a bankruptcy-like process called Title III.
Groups holding general-obligation bonds and senior sales-tax debt, which get the first claim on that revenue, rejected the offer. The senior sales-tax group now wants Puerto Rico to seek Title III, which Congress approved last year. The commonwealth’s plan doesn’t offer a better recovery to senior sales-tax bonds compared with the subordinate lien, a feature the investor pool disagrees with, Matt Rodrigue, managing director at Miller Buckfire & Co., financial adviser to the senior sales-tax group, said in a telephone interview.
“The right next step is a Title III filing to provide a forum in which creditors’ rights will be respected and it also will provide a continuance of the stay, which will protect the people of Puerto Rico,” Rodrigue said.
The senior group has declined Puerto Rico’s request for a 60-day forbearance, Rodrigue said. While general obligation bondholders are looking to avoid Title III, they say Puerto Rico’s plan isn’t a credible starting point for negotiations. The offer is based on the commonwealth’s fiscal plan, which creditors say doesn’t allocate enough money for principal and interest payments.
“We urge Puerto Rico’s elected leadership to work with creditors to construct a consensual solution that is based on a credible financial forecast and that avoids the free fall Title III that the Oversight Board seems intent on imposing,” Andrew Rosenberg, a partner at Paul Weiss Rifkind Wharton & Garrison, who advises the group of GO bondholders, said in an email.
The governor reiterated his believe that the parties can reach a deal and that talks may continue beyond Monday. He didn’t rule out using Title III.