Puerto Rico Bondholders Agree to $35B Debt Restructuring Deal

The oversight board given the tenuous position of trying to restructure a deal with the bondholders of Puerto Rico can finally breathe a sigh of relief. A $35 billion deal was finally reached with bondholders–an amount that equates to almost half of the country’s indebtedness.

In a release, the oversight board said the deal would “reduce the amount of Commonwealth-related bonds outstanding to less than $12 billion.” Debt servicing would also see a reduction of principal and interest over the next 30 years to $21 billion from $43 billion.

The country of Puerto Rico was already saddled by debt, but last year’s devastation brought forth by Hurricane Maria only exacerbated their financial situation, among other things. In order to pay its bills, the government of Puerto Rico was already borrowing insurmountable amounts of money, but in the wake of the country’s rebuilding, it appears the country may be getting the assistance it desperately needs.

“We have fought hard for the interests of the people of Puerto Rico and we are glad to have reached a consensual agreement with creditors that lowers Puerto Rico’s total debt burden and its annual debt payments significantly,” said the Oversight Board’s Executive Director Natalie Jaresko. “These were tough negotiations and we are confident we reached the best deal possible for Puerto Rico to move on from decades of incurring debt we could not afford.”

“It is a very positive development for Puerto Rico that a cross section of large bondholders has worked with the Oversight Board to develop a consensual restructuring agreement that will accelerate the Commonwealth’s exit from bankruptcy, respect the lawful priority of valid public debt, and help ultimately restore capital markets access,” said Susheel Kirpalani, an attorney from Quinn Emanuel Urquhart & Sullivan who represents bondholders in the Lawful Constitutional Debt Coalition.

Last year, creditors approved a plan to restructure Puerto Rico’s debt issues from the country’s insolvent Government Development Bank. It’s the first debt restructuring under the 2016 Puerto Rico Oversight, Management, and Economic Stability Act, which was originally designed to help alleviate the country’s $120 billion debt and pension liabilities.

Since May 2017, Puerto Rico has been attempting to restructure its debt through a combination of filing bankruptcy via the U.S. court system and making deals with creditors. Final approval for the debt restructuring, expected around Nov. 6, rests in the hands of Puerto Rico’s federally appointed financial oversight board and U.S. Judge Laura Taylor Swain.

Looking at the fine print of the restructuring deal, the GDB would transfer loan portfolios, real estate assets and cash to a GDB Debt Recovery Authority portions to help pay back the $4 billion of debt it owes. In turn, the GDB Debt Recovery Authority would issue new bonds backed by a statutory lien on the transferred assets equal to 55% of the debt owed.

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