Puerto Rico, U.S. Treasury in Talks to Restructure Island’s Debt

Yesterday it was reported that Puerto Rico and U.S. officials are discussing the issuance of a “superbond” possibly administered by the U.S. Treasury Department that would be used to restructure $72 billion of the Puerto Rican government debt.

Under the plan, the Treasury or a designated third party would administer an account holding at least some of the island’s tax collections. Funds in the account would be used to pay holders of the superbond, which would be issued to existing Puerto Rico bondholders in exchange for outstanding debt at a negotiated ratio. Under this proposal, bond investors would receive less debt, essentially taking a “haircut” on the value of their current holdings, but  with a better chance of eventually getting repaid. 

The proposal would mark an important change in Puerto Rico’s relationship with the U.S. government, which until now has been reluctant to get involved in the island’s debt crisis. However, the superbond proposal will have to be approved in both Washington and Puerto Rico, no small task according to observers. Also, discussions with bondholders over the size of any haircut could present further challenges to getting a restructuring deal done.

Talks between Puerto Rico’s representatives and Treasury officials are only in the preliminary stages and any deal would not include financial aid or a U.S. guarantee of the newly issued Puerto Rico debt .  This proposal is just part of an overall strategy to work out solutions after the PR government admitted earlier this year  it cannot pay its current debt in full.

The experienced securities litigation attorneys at Colling Gilbert Wright, along with local Puerto Rico counsel are aggressively investigating and filing claims on behalf of Puerto Rican residents who purchased and lost money in UBS, as well as other (Santander Securities, Banco Popular Securities) closed-end municipal bond funds.  If you have lost money investing in Puerto Rican bonds and closed-end bond funds, please contact our office today for a free consultation