Puerto Rico heading toward bankruptcy as deadline comes close
Posted: Wednesday, April 12th, 2017 at 12:40 am
May 1st is the deadline for Puerto Rico to restructure $70 billion in debt. As the deadline nears bankruptcy is looking like a possibility for the islands once widely held municipal bonds.
Last year PROMESA was a rescue law passed by the U.S. Congress. This law would freeze creditor lawsuits and assign an oversight board. Now negotiations in regards to the island lawsuits could be discussed and resolved out of court.
A Republican aide to the House Committee on Natural Resources, who is in charge of the territory said an extension to the deadline “not going to happen,”
Analyst say Puerto Rico will end up seeking protection from creditors with their equvilant of bankruptcy called PROMESA. Mediated talks will being on Thursday.
A source from the talks says a bankruptcy is “impossible,” although the tolerance deals could make negotiations continue until May 1st.
Governor Ricardo Rosello took office in January and a anonymous source from the talks said parties have increasingly started to grow apart.
Investors were shocked by the negotiating tactics Rossello and that board have presented. They were hoping for more of a creditor- friendly approach from both parties. However, the board is pushing debt repayments that are doubled than those presented by the former Governor Alejandro Garcia Padilla.
Stakeholders wanting to resist mediation, have come together to question the legality of a fiscal reversal blueprint which has already been approved by the board.
Hector Negroni, said he recalled “constructive comments” from Rossello and other members of the board “about protecting the priorities of creditors” in the boards infancy. “But their words are not being followed up by their actions,” said Negroni. Negroni’s Fundamental Credit Opportunities fund sustains Puerto Rico debt.
Heights Security analyst Ed Groshans said bankruptcy is “the most likely outcome.”
Rossello’s intermediary to the board, Elias Sanchez, said the government has hope for at least partial agreement. “We feel very confident we can strike some deals by May 1, maybe not all of them,” said Sanchez.
Francisco Cimadevilla, a spokesperson for the oversight committee said they are committed to pursuing an agreement out side of the courts. “A transaction is always better than a lawsuit,” he said.
“The more creditors insist that part of their position is that no one fare better than they do, the more difficult that is to effectuate outside of bankruptcy,” said Melissa Jacoby, a restructuring expert from the University of North Carolina School of Law.
A 45 percent poverty rate and the increase in emigration is at the root of the crisis Puerto Rico is trying to avoid.
Jacoby also mentioned bond markets will see the bankruptcy as a negative because now the debtors are able to impose payment cuts on creditor objections.
In recent weeks trading prices of Puerto Rico benchmark 2035 general obligation bonds have been dangerously high and cause for concern.
Creditors and the government a like want to avoid bankruptcy because the risks can affect both parties.
“Could go really bad for the government too,” said Sanchez about the fate of Puerto Rico in the hands on an unpredictable judge.
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