Puerto Rico is currently dealing with a concerning financial crisis. The government owes an outstanding debt of $70 billion USD. At the same time, the Commonwealth fights a high rate of unemployment of 12.4%. As a consequence, the government passed policies that are meant to create a friendly environment for increasing profit. The costs are extremely reduced while revenues climbed which contributed to an economic boost. One of its latest strategies to avert any further development of the bond debt was a discount for senior creditors.
Senior Creditors to Pay 50 Cents for One Owed Dollar
On Friday, the Puerto Rican government released a generous offer for its bondholders. The strategy allows senior creditors to pay 50 cents for each dollar that they owe. As such, the government is ready to supply this financial crisis solution with $16.75 billion for a debt of $36.38 billion. Moreover, the program might receive an additional $8 billion. This is thanks to the fact that Puerto Rico might unfreeze more funds than previously expected over the next decade.
On top of that, the government might even consider junior bondholders. In case the archipelago manages its cash flow better than forecasted, junior debtors might get paid as well. However, some specialists doubt the effectiveness of this strategy. Andrew Rosenberg is a general obligation bondholder adviser who noticed numerous flaws in the Puerto Rican fiscal plan.
“The commonwealth’s proposal is not a credible starting point for negotiations.”
New Puerto Rican Legislation Is Looking to Increase Tax Revenue
Debtors received a legal authorization to prorogue their payments. However, this moratorium is going to expire on May 1. Nonetheless, the government is currently working on a project to replicate such protection. As such, the next path might employ a bankruptcy-like strategy that aims at restructuring debt that unlocks once more protection against lawsuits.
Governor Ricardo Rossello claimed on Saturday that they are negotiating with creditors to find a way to save Puerto Rico from the financial crisis. While the governor is looking for a win-win situation, he is ready to take advantage of political instruments to keep the restructuring efforts afloat. Moreover, the governor signed on Saturday new legislation. The bill offers the government access to financial surpluses that can be unlocked in special circumstances. Moreover, the new legislation eliminated employee benefits, and it is also looking to enhance tax revenue.
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