Puerto Rico "Generously" Offers To Repay 54 Cents On The Dollar To Creditors Owed $70 Billion

Tyler Durden's picture

Height Securities’ Daniel Hanson is “deeply skeptical” about the viability of Puerto Rico’s proposal for restructuring the island’s $70 billion in debt.

Hanson, in a note out late last week, said Governor Alejandro Padilla was “significantly unlikely” to present a “credible” plan and that the commonwealth’s offer to creditors may be “laughably low.”

As a reminder, Puerto Rico defaulted on some of its non-GO debt last month, presaging more missed payments this year as creditors come calling in May and July.

So far, the island has been able to avoid a messy default on its GO debt by utilizing a revenue "clawback" mechanism that effectively allows the commonwealth to divert money earmarked for non-GO debt, a move decried by the monolines.

In December, the market thought there might be a light at the end of the tunnel when creditors and the island's power utility managed to get the bond insurers to go along with a $8 billion restructuring for PREPA, but that fell apart a week ago when lawmakers failed to vote on a new tax. Ultimately, the deadline to pass the bill was extended to February 16, but the fraugh negotiations underscore how precarious the situation has become. 

On Monday, we got our first look at Puerto Rico's opening salvo in what's likely to be protracted battle to tackle the entire debt burden.

"Puerto Rico on Monday announced a major exchange offer to creditors that could reduce its debt by about $23 billion, the opening salvo in efforts to resolve the island's crippling $70 billion debt crisis," Reuters reports, adding that "the new plan would reduce a $49.2 billion chunk of Puerto Rico's debt by about 46 percent, to $26.5 billion, by offering creditors payout reductions under a new, so-called "base bond" with better legal protections."

GO bond holders would take a 28% hit, COFINA holders would lose 51%, and everyone else would take a 61% haircut. Here's how the scheme will work:

On the bright side, creditors would receive "growth bonds" designed to make up for the losses. The payout on those securities will be tied to the island's economy and as you might recall, things aren't going so well. Here's a table from Moody's Analytics would should give you an idea about how valuable these "growth bonds" are likey to be:

"Interest payment on the base bond would begin in 2018 (so that's a two year moratorium), reaching 5 percent a year by 2021, while payouts on the growth bond would begin 10 years after the close of the offer," Reuters continues. The base would give creditors the rights to tax receipts as a security measure.

Obviously, this isn't likely to go over well with creditors, but then again, bond holders probably knew the proposal would be, to quote Height Securities' Daniel Hanson again, "laughable." 

Of course no one will be laughing if the deal doesn't get done and the island crashes into a messy GO default triggering a nightmarish deluge of costly litigation.

We'll close the way we began - with a quote from Daniel Hanson:

"Puerto Rico debt restructuring proposal isn’t credible. The targets are “wholly unrealistic,” and require creditors to trust Puerto Rico will make good faith effort to repay them."

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Full proposal

16 02 01FinalProposal-Revised

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Soul Glow's picture

What could go wrong?  Puerto Rican debt is only owned in every pension fund in the US!

SoilMyselfRotten's picture

Who is going to loan them that 0.54 cents on the dollar?

Boris Alatovkrap's picture

Boris is laugh! You are make joke, but tell truth. This is call "Irony" or "Trajedy"?

Latina Lover's picture

54 cents on every dollar.... hmmm, are they referring to USD's or perhaps a new Puerto Rico Dollar?   Their currency could be backed by the IRS, since they are also an agency of Puerto Rico



I'ma gonna try that on my mortgage holder and credit cards today as well.

Wish me luck, fella's !

COSMOS's picture

Goldman Sucks I am sure made a killing in commissions selling those bonds to many a pension fund.  They will later buy up the bonds for pennies on the dollar, then get the next whore President to do a full bailout, and they redeem the bonds at 100%.   Goys penniless the Effendi wealthiness.

y3maxx's picture

"Puerto Rico calling Iceland...Puerto Rico calling Iceland."

Hello, is this Iceland?

This is Puerto Rico calling.

We need your advice please.

SoilMyselfRotten's picture

They're both banking on sea levels rising to the point where it doesn't matter

JRobby's picture

Bankster Mantra: Invade, Occupy, Privatize, Re-Capitalize, Extract $$$$$$$$$$$$$$$$$

jcaz's picture

It's just business-  almost as funny as Puerto Rico calling themselves a "growth" prospect-  BUWAHAHAHAHH!!!!!!!!!!!!

TwoHoot's picture

Didn't "We pretend to work and they pretend to pay us" originate in the Russian motherland? This is the US version - "You pretend to pay us and we will pretend there wasn't a default". Not a joke, not irony, not tragedy. Called "new normal". Very serious stuff.

CounterPartyVice's picture

GS will loan them the money to repay in full just after selling another round of CDS to paniqued investors. See win-win for bankers.

thesonandheir's picture

Nationalise J-Lo's arse and sell chunks off to real estate developers. Get Goldman to package some loans up with the assets and sell them as high grade investments.


Then run like fuck.

nuubee's picture

Who would want to live there? It's hot, sweaty, and smelly. I hear they have a huge ongoing sausagefest...

Strelnikov's picture

Sounded good until the "sausagefest" part...

knukles's picture

Been there way too much on business years ago when it was still "nice"

StrikerMax's picture

They have no problem financing the loan on yet another default in the future loan, just like all other countries.


doctor10's picture

sheesh!! That little island can't even repay 7 billion!!

Tinky's picture

I came here for a haircut, not a buzz cut! Put that damn thing down!

_ConanTheLibertarian_'s picture

What are the consequences of this default? Could this trigger something bigger?

Soul Glow's picture

Most retired folks own bond funds with exposure to Puerto Rico because it is tax free.


Winston Churchill's picture

Don't worry, the bankers will be just fine.

Us, not so much.

Whoa Dammit's picture

PR will become the 51st state and O will make us responsible for paying the creditors. Easy peasy if you're the 1%.

KnuckleDragger-X's picture

PR is neither fish, nor fowl, or good red meat. Bankruptcy law is in the twilight zone here and a money making oppurtunity for land sharks to make a lot of money.....

Hohum's picture

A proposal:  Chapter "17" bankruptcy for states and territories.

Emergency Ward's picture

After the double-secret bailout fix is implemented, Soros and Buffett can sell their bargain-basement purchased tranches for 94 cents on the dollar.

Scooby Dooby Doo's picture

Free exotic Puerto Rican honeymoons for all Americans.

Motorhead's picture

Sure, 54 pennies on the dollar...let 'em do it.  Next time they come begging for money....

American Psycho's picture

So you invest in a risky asset and then pout when it does not preform?  boohoo

COSMOS's picture

These pension fund 401ks dont give folks the ability to pick and choose too much.  You have to give it to cousin A or cousin B cor cousin C etc of the effendi ruling class.  They will then fleece you as required by holy book.

Kaiser Sousa's picture

what part of "we aint paying u" dont these mother fuckers understand????


ZeroPoint's picture

Lol, didn't Greece try that too?


Motorhead's picture

So THAT'S what Puerto Rico needs...a TROIKA!

Kreditanstalt's picture

...and if those same creditors push the P.R. government into the bankruptcy it so richly deserves they will get even less.  That's what happens when you (desperate for yield) lend munny to insolvent enterprises...

Hohum's picture

Under current U.S. law, Puerto Rico cannot file bankruptcy.  Chapter 9 is for municipalities (e.g. Detroit).

Kreditanstalt's picture

Private sector bankruptcies! ~ happen whether or not there is a "law"...we've seen that A LOT in last few years.  Greece?

Hohum's picture

You're right but P.R. knows it's toast if it officially defaults.  The can kicking will continue.

COSMOS's picture

The federal govt will come in and purchase part of Puerto Rico for seven billion and give the land to the BLM

jakesdad's picture

is there such a thing as a solvent government entitiy anymore?  I considered putting some $ in munis a decade ago for tax favorability but they're all demographic time bombs!

Omen IV's picture

50% is silly  -    offer to pay 15% and cut the pensions equal amount - apply same formula to Illinois and put thru Bankruptcy law for all states - eliminate the pensions overnite and reduce real estate taxes


any riots are confined to PR - who cares if they burn it down



Sudden Debt's picture

Just another loan of 37 billion and the check is IN THE MAIL BABY!

Come on man! Let's do something GREECEY!

Strelnikov's picture

Here's how the scheme will work


Well, they got the "scheme" part right.


Fuck all bondholders.

Being Free's picture

Just Puerto Rico taking a cue from central bankers everywhere and instituting retroactive negative interest rates. What's the problem??

alexcojones's picture

Creditor Accepts 54 cents in US COINAGE.

Two Pre 1964 Silver Quarters and Two 2 cent pieces, 1865.

ah-ooog-ah's picture

that which can not be repaid, will not be repaid


83_vf_1100_c's picture

When you owe the bank a couple thou and don't have it, you are in trouble. $70 bil? The bank is screwed. They should take the .54 deal but of course if PR had the funds they would not be in this situation.

As a kid I always dreamed of working til I died on the job site at age 80.   /s  Pensioners are gonna find out what it's like to be WalMart door greeter.

bluskyes's picture

is 54% of nothing better than 100% of nothing?