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(GFR Media)

The main groups of Puerto Rico bondholders who for months saw in the figure of Ricardo Rosselló Nevares a possibility to recover what they’d lent the Government yesterday expressed their rejection to the governor’s efforts, by characterizing as “not credible” and “confiscatory” the offer to renegotiate in good faith part of the Islands public debt.

“The Government’s proposal is not a credible starting point for negotiations,” said Andrew Rosenberg from the legal firm of Paul, Weiss, Rifkind, Wharton, and Garrison who advises the Ad Hoc- GO group. “It’s an absurd proposal,” said Matt Rodrigue, from Miller Buckfire, financial adviser for the Bondholders’ Coalition of the Puerto Rico Sales Tax Financing Corporation (Cofina, by its Spanish acronym).

Although the General Obligations (GOs) bondholders and those of Cofina have accused each other of holding illegal debt, both lashed out against the Fiscal Agency and Financial Advisory Authority (FAFAA) by rejecting the administration’s offer.  While Rosenberg assured that the proposal was unacceptable because it rests on a plan that violates the provisions in the PROMESA federal law, the legal adviser of the Cofina bondholders, Susheel Kirpalani, criticized the offer because it fails to recognize the differences among the different types of bondholders from that issuer, and because the Government insists on making its own the revenues from the Sales and Use Tax (IVU, by its Spanish acronym), which by law, belong the Cofina bondholders. 

“We urge Puerto Rico to work with creditors in building a negotiated solution that is based on credible financial forecasts and prevent a free fall to Tittle III (of PROMESA) which the OB seems to be attempting to impose,” said Rosenberg in writing.

Almost at midnight on Friday, the FAFAA revealed the offer it made to several of its creditors last week, as part of a mediation and negotiation process headed by retired bankruptcy judge Allan L. Gropper. 

As El Nuevo Día had anticipated, FAFAA proposes, in essence, a reduction of between $0.50 cents and $0.60 cents to two main bondholders’ groups establishing a dual swap structure, similar to that prepared by consultants Millstein & Co. and Cleary Gottlieb during the administration of Alejandro García Padilla. Said proposal offered “a growth bond” which was also rejected by the bondholders.

The FAFAA proposal also links bonds from public corporations such as the Highways and Transportation Authority (ACT, by its Spanish acronym), which collections are subject to a “claw back” retention by the central Government to pay for the constitutional debt.

The fewer protections at law, the more aggressive the cut sought by the proposal.

Negotiations will continue.  According to the executive director of FAFAA, Gerardo Portela, the offer is in line with the precariousness exhibited by the fiscal plan as certified and it is within that setting that it seeks to offer the best possible yields.

"The government of Puerto Rico and the FAFAA are committed in their bona fide efforts to reach a negotiated solution with the creditors within the parameters of the Puerto Rico Fiscal Plan," said Portela when suggesting that negotiations between the parties will continue in the following weeks.

Based on a representation of the impact of the offer in the document, a GOs bondholder would receive a “senior” bond, equivalent to $0.52 cents and would receive a “senior” CFB, worth another $0.25 cents. That would mean a potential recovery of $0.77 cents.

In the case of a Cofina bondholder, main bondholders, and subordinated bondholders would receive between $0.39 and $0.38 cents and the possibility of recovering a further S0.18 cents through a cash flow bond (CFB) for a potential recovery of $0.57 cents. If the Cofina bondholders reject the offer, they will have their credit liquidated by paying the main Cofina bondholders $450 million in short-term notes. Cofina subordinated bondholders would receive no payment.

According to sources of this daily, the FAFAA offer has, once again, created suspicion among the Cofina bondholders, many of them residents of Puerto Rico, (they) say the proposal practically annuls them even though they only hold these loans and not a combination of Puerto Rico securities. This is the case with large institutional funds and insurers who hold or are backing various types of the Island’s credits and who’ve been sitting at the table over the last two weeks.

“The adjustment plan proposed by FAFAA is designed to obtain votes from large institutional funds with conflictive portfolios of general obligation bonds (GO) as well as senior and subordinated COFINA bonds,” said Kirpalani.

Likewise, the sources point to a supposed preference by the administration toward the GO bonds, even though the Government has alleged not to have adopted a position in the controversy between the parties.

However, the offer does not make any sense to the GO bondholders either. Sources related to those bondholders indicate that the offer is unacceptable, because the bond proposes a 4.5% coupon and suggests a future compensation, at a time when the Government has yet to define what essential services are.

The rejection by bondholders comes two days away from the end of an automatic stay on litigations provided for in PROMESA.


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