Bondholders Reach Tentative Deal to Restructure Half of Puerto Rico’s Debt; FOB, Commonwealth Oppose Agreement but Fiscal Board Calls Framework “Step in the Right Direction”​

Groups holding up to half of Puerto Rico’s $70 billion public debt reached an initial agreement to resolve the dispute over who owns revenues generated by the Sales and Use Tax (SUT). The Sales Tax Corporation Fund (COFINA in Spanish), Seniors Coalition and a group of General Obligation (GO) bondholders (Ad Hoc GO) reached a tentative deal to restructure half of the Commonwealth’s outstanding debt. The Puerto Rican Bondholders Group (“Bonistas del Patio”), as well as bond insurance companies, also participated in the negotiation to set the parameters of the restructuring process, which would be the first step towards a consensual transaction.

The proposal has two components: 1) it would end the dispute over who owns the Sales and Use Tax (SUT) revenues and 2) it would create a trust where COFINA, GO and certain non-insured debts will be exchanged for a new instrument that would pay cash interest, capital appreciation bonds and a “residual series.” The entity would retain 5.5% of the SUT, a provision that would need to be approved by federal courts.

Although the COFINA Seniors Coalition praised the agreement, the Fiscal Agency and Financial Advisory Authority (AAFAF in Spanish) rejected the agreement, calling it “unacceptable.” The Fiscal Oversight Board (FOB) also criticized the deal, saying it would create “structural deficits” and is not compatible with the Island’s certified fiscal plan. While the FOB praised the “framework” of the agreement, it took issue with the economics of the accord, meaning the amount of the debt that would be restructured. Any agreement would need FOB approval as well as ratification by federal bankruptcy judge Laura Taylor Swain.

Governor, Legislative Leaders, FOB Huddle in Fortaleza

Governor Ricardo Rosselló held a last-minute meeting with FOB Chairman José Carrión to discuss the budget impasse. The meeting was also attended by House Speaker Carlos “Johnny” Méndez and Senate President Thomas Rivera Schatz. Although details of the meeting have not been released, legislators who attended the meeting said talks would continue, and the Governor would not reintroduce the budget that was previously rejected by the FOB. The Governor’s budget was rejected because it did not include pension cuts, labor reform and other measures included in the FOB certified fiscal plan.

Chairman Bishop’s Trip to Puerto Rico Causes Stir

A Mother Jones report alleges that House Natural Resources Chairman Rob Bishop (R-UT) held a fundraiser during a recent trip to Puerto Rico. Despite his spokesperson’s denial that a dinner held during the trip was intended to raise money for the Congressman’s reelection campaign, a PREPA lobbyist told Mother Jones that the dinner was a fundraiser, something that he later recanted. However, the article quotes FOB Chairman Carrión saying: “I do not think there were conflicts of interest at the dinner,” Carrión told Mother Jones, “My political contributions are well known and of the public record. Everyone in Puerto Rico knows I am a Republican.”​

The trip was already controversial due to Bishop’s endorsement of statehood for Puerto Rico. After saying through a spokesperson that he supported statehood for the Island, Bishop held a press conference where he stated that balanced budgets and economic growth were a prerequisite. Statehood supporters took offense and Bishop later clarified he did not support preconditions and would bring a bill to the vote in his committee after its introduction by Resident Commissioner Jenniffer González.