Twenty-five members of Puerto Rico’s credit union sector unveiled today in New York a proposal to restructure the bulk of the government’s outstanding public debt, which calls for reducing the payment burden and providing guarantees to creditors.
“We propose a new approach that recognizes the two dimensions of the island’s crisis: the lack of immediate liquidity and the significant challenges we face in the long term,” said José Sosa-Lloréns, attorney and spokesman for the group known as the “G25.”
“We make full disclosure of this proposed global restructuring so that all parties can analyze it and engage in a broad discussion aimed at achieving consensus solutions. This proposal also responds to the request of the government of global proposals, rather than segmented or individual solutions,” he said.
The proposal — based on numbers provided by the government, and is the result of financial analysis lead by local firm Ramírez & Co. — addresses restructuring some $52 billion of the government’s $69 billion debt by: preserving capital; respecting the priorities of the different credit issuers; readjusting maturity dates; providing steady interest payments; adopting credible and executable controls that inspire market trust; and integrating a reasonable mechanism that allows financing the liquidity the government needs during a given fiscal year and financing investments in infrastructure that spur economic development.
To provide government liquidity the total debt service for General Obligation bonds (GOs) and related credit-issuing entities would be limited to the goal set by the Commonwealth’s Working Group and its advisors of $1.8 billion.
Annual debt service for GOs will be reduced on average $409 million during from 2017 to 2022, while annual debt service for other issuers will be reduced $657 million for each of the next five years and $354 million thereafter for the following 10 years. The proposal would free up $1.4 billion of sales and use tax revenue, which would go to the government’s General Fund.
Meanwhile, the government would see a reduction in the principal amount it owes to Sales Tax Financing Corp. (known as COFINA) creditors by some $1.4 billion, and by some $1.9 billion for debt owed to other creditors, except GO bondholders.
The proposal restores the government’s ability to pay, which will allow a market re-evaluation the re-balanced bonds, Sosa said. It also addresses the liquidity needs for working capital and allows government financing investments in infrastructure and capital improvements needed to stimulate economic growth.
“This proposal seeks to restore the credibility of Puerto Rico through: respect for the constitutional guarantee of GOs; compliance with the representations made by the government regarding pledging Sales and Use Tax revenue for the payment of COFINA bonds, and providing other credit holders a guarantee from the central government, which although subject to the payment of GOs, it is absent in current bonds,” he said.
“The feasibility of this proposal is based on reasonable and good faith terms and benefits involved for both the government and creditors. The alternate route that potential holdouts would have would be to move toward a long, costly and uncertain litigation,” he concluded.