Politics

Puerto Rico bondholders, oversight board strike $35 billion debt restructuring deal

Key Points
  • The deal, which will still need to be approved by the Judge overseeing the bankruptcy process, will cut the Commonwealth's outstanding bond debt from $35 billion to approximately $11 billion.
  • The new agreement sees a reduced debt repayment timeline by ten years compared with the prior 2019 Plan of Adjustment, which means the Commonwealth would retain the last ten years of cash flow totaling nearly $5 billion.
A person carries a Puerto Rican national flag during a protest against the government's austerity measures as Puerto Rico faces a deadline on Monday to restructure its $70 billion debt load or open itself up to lawsuits from creditors, in San Juan, Puerto Rico May 1, 2017.
Alvin Baez | Reuters

The federally appointed oversight board in charge of Puerto Rico's ongoing record debt restructuring saga announced on Sunday night that they have come to terms with bondholders of around $35 billion, which accounts for nearly 50% of the bankrupt island's total debtload, a crucial step forward for the beleaguered island's arduous bankruptcy process.

The deal, which will still need to be approved by the Judge overseeing the bankruptcy process, will cut the Commonwealth's outstanding bond debt from $35 billion to approximately $11 billion.

The new agreement sees a reduced debt repayment timeline by ten years compared with the prior 2019 Plan of Adjustment, which means the Commonwealth would retain the last ten years of cash flow totaling nearly $5 billion.

The previous agreement was terminated.

The oversight board's chairman, José Carrión, called the new agreement "a win for Puerto Rico."

"It lowers total debt payments relative to the agreement we reached last year, pays off Commonwealth debt sooner, and has significantly more support from bondholders, further facilitating Puerto Rico's exit from the bankruptcy that has stretched over three years," Carrión said in a statement.

Of the more than $13 billion in outstanding general obligation or "GO" bonds covered in the plan, the bonds issued pre-2012 would receive between 70.8 and 74.8 cents on the dollar, while the 2012 and 2014 GO bonds would receive 69.8 cents on the dollar and 65.4 cents on the dollar, respectively.

Holders of $8 billion of bonds support the agreement, including Puerto Rican credit unions and traditional municipal investors, according to the oversight board.

"In addition to reducing the Commonwealth's outstanding debt by approximately $24 billion, the settlement shortens the timeline for debt repayment by ten years and places a cap on annual debt service, which will keep payments at or below 9.16% of government revenues," said Matt Rodrigue of Miller Buckfire & Co. who is the financial advisor for bondholders in the Lawful Constitutional Debt Coalition.

That group holds approximately $2 billion in constitutionally backed debt and includes hedge funds Goldentree Asset Management, Monarch Alternative Capital, and Whitebox Advisors, according to public filings.

The Puerto Rico Ad Hoc Group of Constitutional Debtholders, which also agreed with the terms and who collectively hold approximately $2.6 billion in outstanding debt said, "We believe this settlement positions the Commonwealth of Puerto Rico on a clear path toward emerging from the current Title III proceedings that will result in a significant reduction of the Commonwealth debt burden and restore the island's access to capital markets that is critically important to support the economic recovery of Puerto Rico."

In a press release, Natalie Jaresko, who was named executive director of the oversight board in 2017, said the agreement increases the oversight board's ability to move forward toward exiting bankruptcy this year.

The deal, which was worked out during a court ordered mediation process, will still need to be signed off on by U.S. District Judge Laura Taylor Swain, who is overseeing the island's record bankruptcy-like proceedings.

Correction: This story was updated to remove an inaccurate figure related to the average haircut on the total $35 billion in bonds.

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