Sat, May 18, 2024

Puerto Rico’s Debt Crisis is Coming to End

Oversight board and bondholders

Puerto Rico is part of the U.S. since the 19th century. On Sunday, the federally appointed oversight board in charge of Puerto Rico’s debt restructuring made an announcement. The board was able to reach an agreement with bondholders of around $35 billion.

This is a lot of money as it accounts for nearly 50% of the island’s total debtload. This is a significant breakthrough for the bankrupt island.

The Puerto Rican government-debt crisis dates back to 2014 when three major credit agencies made the decision to downgrade several bonds issued by Puerto Rico.

The judge who is in charge of the bankruptcy process must approve this decision. As a result, bond debt would decline from $35 billion to approximately $11 billion.

Thanks to the new agreement, the debt repayment timeline would fell by ten years in comparison with the previous 2019 Plan of Adjustment. It means that the commonwealth of Puerto Rico would keep the last ten years of cash flow totaling nearly $5 billion.

The board’s chairman Jose Carrion made a comment regarding this agreement. According to Carrion, a new deal would allow Puerto Rico to cover the debt sooner; also, it received support from the bondholders. This is a historic moment as Puerto Rico will have the chance to exit bankruptcy in 2020.

Puerto Rico and debtholdersPuerto Rico and debt crisis

Let’s have a look at the details of this agreement. The plan covers more than $13 billion in outstanding general obligation bonds. The bonds issued before 2012 would receive between 70.9 and 74.8 cents on the dollar. The bonds issued in 2012 and 2014 would receive 69.9 cents on the dollar and 65.4 cents on the dollar.

Moreover, Puerto Rican credit unions, as well as traditional municipal investors, support this agreement.

The bondholders in the Lawful Constitutional Debt Coalition holds approximately $2 billion in constitutionally backed debt. This group includes hedge funds Goldentree Asset Management, Whitebox Advisors, and Monarch Alternative Capital. Hopefully, this group agreed with the terms.

Another group, the Puerto Rico Ad Hoc Group of Constitutional Debtholders, also supported this agreement. They collectively hold approximately $2.6 billion in outstanding debt.

Natalie Jaresko, the executive director of the oversight board, underlined the importance of this decision according to a press release. The oversight board worked with bondholders as part of the court-ordered mediation process. Now it is up to the U.S. District Judge Laura Taylor Swain who is in charge of the process as she has to sign the deal.

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