Puerto Rico disclosed on Tuesday that negotiations with creditors ended without an agreement to restructure some of the island’s $70 billion debt load.
The two sides remained far apart over how to resolve a debt exchange on both the General Obligation debt issued by the U.S. commonwealth and debt backed by sales tax receipts referred to as COFINA.
A government statement said the talks with certain groups of creditors “are no longer continuing” on a non-public basis.
In a statement on Tuesday night, Puerto Rico Governor Alejandro Garcia Padilla urged the U.S. Congress to take action on legislation to resolve the credit crisis, while chiding the bondholders for offering what amounted to only short-term debt relief.
“Put another way, these counterproposals would have simply scooped up the economic problems of today and tossed them to some later date for our children to solve,” he said.
On July 1, Puerto Rico faces a $1.9 billion payment on a collection of bonds that Garcia Padilla has said it cannot pay.
A rare piece of bipartisan legislation in the U.S. Congress would establish a federal oversight board to negotiate various debt restructurings while seeking to institute balanced budgets on the island, a U.S. territory with 3.5 million residents.
The “Puerto Rico Oversight, Management and Economic Stability Act,” or PROMESA, passed the House of Representatives and awaits a vote in the Senate, which the Republican leadership says will come before the end of June.
President Barack Obama’s administration has backed the bill, calling it a compromise, but Senate Democratic leader Harry Reid said amendments were needed. Democrats have voiced concern the oversight board might not have Puerto Rico’s best interests in mind. Supporters of the bill say without it, Puerto Rico could slip into chaos.
Puerto Rico’s revised proposals in a June 14 offer to creditors for restructuring GO debt amounted to an 81% recovery rate, up from an initial offer of 78%.
In the documents released by the Government Development Bank, a creditor counterproposal dated Monday sought a recovery rate of 89% on the GO and guaranteed debt that was sold with the backing of the full faith and credit of the commonwealth.
That group of creditors said its latest proposal would cut Puerto Rico’s debt service costs by $2.9 billion over the first five years and demonstrated a willingness to negotiate and avoid a default on July 1.
“We believe there is significant bipartisan support in Puerto Rico for this proposal, which gives ‘breathing room’ to Commonwealth leaders by deferring principal payments and reducing contractual interest rates until July of 2022,” said Andrew Rosenberg of Paul, Weiss, Rifkind, Wharton and Garrison, a lawyer for the creditors said in a statement on Tuesday night.
As for the two classes of COFINA debt, the government offered a revised recovery rate of 80% on the senior COFINA bonds, up from an initial 66% recovery rate. On the subordinated COFINA bonds, the revised proposal was for a 60% recovery rate versus an initial proposal of 47% recovery.
Some creditors are still looking for a 95% recovery rate on the senior COFINA debt, according to a counterproposal dated June 17.
Under Puerto Rico’s revised proposal, the amount of money set aside for debt servicing increased by $17 billion to $106.5 billion through the year 2071. Debt servicing costs would not exceed 18% of fiscal year 2016 adjusted revenues or 15% in any year going forward, assuming a nominal 2% economic growth rate.