Puerto Rico debt deal: Bondholders get paid, future of public services uncertain

Puerto Rico is still struggling from the effects of Hurricane Maria, on top of a 12-year economic recession. In this photo, President Donald Trump tosses paper towels into a crowd at Calvary Chapel in Guaynabo, Puerto Rico, on Oct. 3, 2017. | Evan Vucci / AP

SAN JUAN, Puerto Rico (AP)—A federal bankruptcy judge approved a major debt restructuring plan for Puerto Rico on Monday in the first deal of its kind for the U.S. territory since the island’s government declared nearly four years ago that it was unable to repay its public debt.

The agreement involves more than $17 billion worth of government bonds backed by a sales-and-use tax, with officials saying it will help the government save an average of $456 million a year in debt service. The deal allows Puerto Rico to cut its sales-tax-backed debt by 32 percent but requires the government to pay $32 billion in the next 40 years as part of the restructuring.

Senior bondholders, who hold nearly $8 billion, will be first to collect, receiving 93 percent of the value of the original bonds. Junior bondholders, many of whom are individual Puerto Rican investors and overall hold nearly $10 billion, will collect last and recover only 54 percent.

The deal was previously approved by bondholders but prompted hundreds of people to write and email Judge Laura Taylor-Swain, who held a hearing on the issue nearly three weeks ago, to express concerns about the government’s ability to make those payments and the effect it will have on public services. In her ruling, she wrote that she reviewed and carefully considered all those messages before making a decision.

“Many of the formal and informal objections raised serious and considered concerns about the Commonwealth’s future ability to provide properly for the citizens of Puerto Rico who depend upon it,” she wrote. “They are not, however, concerns upon which the Court can properly act in making its decision…the Court is not free to impose its own view of what the optimal resolution of the dispute could have been.”

The judge said that the deal represents a reasonable compromise and that further litigation would present a “significant gamble” for Puerto Rico. The island is mired in a 12-year-old recession and struggling to recover from Hurricane Maria as the government tries to restructure a portion of its more than $70 billion public debt load. Taylor-Swain’s ruling said the compromise is “admittedly, deeply disappointing to countless citizens of Puerto Rico and investors in Commonwealth bonds.”

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CONTRIBUTOR

Dánica Coto

Dánica Coto helps cover the Caribbean for the Associated Press. She is based in Puerto Rico but reports, edits, and translates stories from around the region.