October 23, 2018

Puerto Rico Restructuring Plan Filed, Bonds Rally

by Refinitiv.

Late Friday on October 19, the Financial Oversight and Management Board for Puerto Rico (the Board) filed a disclosure statement with the federal bankruptcy court. The filing, on behalf of COFINA, lays out the Board’s plan of adjusting the outstanding sales tax bonds. The 800+ page document provides additional details on the debt restructuring plan itself, including a list of all creditors that will be impacted.

Under this plan, the security pledge and projected recoveries are expected to be unchanged from the original proposal. However, the structure was slightly modified with an increase in the allocation of capital appreciation bonds relative to current pay bonds, and certain sinking fund requirements were eliminated.

Along with the disclosure plan, an updated board certified COFINA Fiscal Plan (dated October 18, 2018) was presented. This Fiscal Plan indicates a more optimistic economic outlook for the island. For the period between FY2018-2023, the annual average GNP growth rate was revised higher to +1.67% (post-measures and structural reforms implemented by the government). This compares to a -0.32% annual growth projected back in the last certified fiscal plan done in June. Furthermore, the island expects total projected government and private disaster relief funding to total $82 billion over the next 15 years, up from the original estimate of $62 billion.

With the plan now officially filed with the courts, the Board needs to make its case as to why the bankruptcy judge should approve it. As in any bankruptcy proceeding, the courts will determine whether the plan: has the necessary support from creditors; is “fair and equitable” for non-accepting creditors; is in the best interest of creditors; is feasible, and complies with the bankruptcy law. The next important date to keep in mind is January 16, 2019, when the Title III Court is scheduled to consider confirmation of the plan of adjustment.

Despite objections from the agent representing island retirees and GO bondholders in the Commonwealth-COFINA dispute, the muni market viewed Friday’s news in a positive light. The majority of the island’s bonds traded higher on Monday in very active trading. The biggest price gainers were Puerto Rico GO bonds. For example, Puerto Rico GO 8s of 2035 ended Monday, October 22nd at $60.50 on volume of $90+ million, up 10% from October 18th.

For more information on Puerto Rico’s restructuring plan, see our recent whitepaper here: Puerto Rico: Light at the End of the COFINA Tunnel

Source: Thomson Reuters Pricing Service.

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