Puerto Rico bondholders are being left with more questions than answers for as much as a week longer after Gov. Alejandro Garcia Padilla gave advisers more time to work on a proposal to restructure the commonwealth's $72 billion debt burden.
Garcia Padilla was originally scheduled to receive the plan Sunday. The governor extended that deadline to Sept. 8 because government officials were focused last week on the possible impact of Tropical Storm Erika, which broke up before making landfall. The report's been labeled as an economic recovery and fiscal adjustment plan crafted by top administration officials, known as the Working Group, and outside legal and financial experts from Cleary Gottlieb Steen & Hamilton and Millstein & Co.
The commonwealth and the island's power authority, known as Prepa, have already spent more than $60 million on law firms and consultants for guidance on ways to reduce their debt loads.
The administration, which has failed to win congressional approval for the use of bankruptcy, hasn't said when details will be released to the public.
"I'm a little concerned that we still might not get a lot of answers," said Mikhail Foux, a municipal-debt strategist at Barclays in New York. "Maybe we'll actually hear their thinking about what specific entities will be more affected."
Puerto Rico's fiscal adjustment plan may include recommendations to reduce labor costs, increase tax collections and inject $1.5 billion over five years into infrastructure improvements, according to local reports. Such changes may still require about $2.5 billion of debt relief each year, according to Daniel Hanson, an analyst at Height Securities, a Washington-based broker dealer.
Garcia Padilla ordered the debt-adjustment plan in June and said the commonwealth was unable to repay all of its obligations. Prices on Puerto Rico bonds have sunk, with the securities losing 10.7 percent this year through Friday, the worst for the period since at least 2013, according to S&P Dow Jones Indices.
The broader municipal-bond market has returned about 1 percent in 2015. General obligations with an 8 percent coupon and maturing July 2035 traded Friday at an average price of 72.7 cents on the dollar, down from 77.3 cents on June 26, the last trading day before the governor said Puerto Rico can't repay all its debt.
Puerto Rico and its agencies owe $72 billion, including $13 billion of general-obligation debt. A restructuring would be the largest-ever in the $3.6 trillion municipal-bond market. The commonwealth defaulted Aug. 3 when one of its agencies failed to pay $58 million of principal and interest after lawmakers declined to allocate the money because of a budget crunch.
The island's economy has struggled to grow for 10 years and its 11.9 percent unemployment rate is more than double the level on the U.S. mainland. It's population of 3.5 million is projected to lose another 240,000 residents by 2025 after already shrinking by 7 percent in the past decade.
Business on 09/01/2015