Two of the biggest players in the battle over how to restructure Puerto Rico's $70 billion debt load came face to face on Thursday at an investment summit in San Juan.
The fiery debate between Jim Millstein, the U.S. territory's lead debt restructuring adviser, and Nader Tavakoli, the CEO of Ambac — one of the largest insurers of PR-issued debt — was over whether the island should be granted access by Congress to Chapter 9 bankruptcy laws to restructure a large portion of its outstanding debt.
The commonwealth's restructuring proposal, unveiled Feb. 1, addresses $49 billion of the approximate $70 billion in the total outstanding debt due to bondholders. Under the plan, which Millstein helped construct, the outstanding principal owed to bondholders would be slashed by nearly $23 billion, by enacting a number of extensive measures to try to reduce the large fiscal deficit. However, even after the implementation of all the measures in the plan, there's still a $23 billion financing gap, or about two-thirds of the debt service due over the next 10 years, that Millstein argues needs to be restructured.
Millstein explained the basics of the debt swap proposal to hundreds of people at the Puerto Rico Investment Summit — a conference aimed at attracting new investors and residents to the fiscally struggling island — said he expects it to be a long process, but that in the end he is confident that they will reach an agreement with the majority of the creditors, but that in there needs to be a legal mechanism, like bankruptcy, to bring holdout creditors to the negotiating table.
Tavakoli of Ambac, which guarantees about $2.5 billion of Puerto Rico bonds at face value, slammed Millstein's proposal, saying that the one way to assure that economic contraction continues on the island is to allow Puerto Rico to restructure its debt through Chapter 9.
"I am not sure where this notion bankruptcy is a good thing came from, but I have had 35 years of experience in bankruptcy, and I will tell you most assuredly It's a terrible idea," said Tavakoli. "It will chase consumer confidence to zero, it will chase investor confidence away from the island, and to be sitting here at an investment seminar and be talking about the island defaulting on its obligations to its creditors when there are other very viable options is frankly a little bit surreal for me."