Puerto Rico bondholders may get a clearer picture in the coming week of how they will fare under restructuring plans for $72 billion in debt.
Puerto Rico's Working Group for the Fiscal and Economic Recovery of Puerto Rico was expected to complete its fiscal and economic adjustment plan by Monday, while the commonwealth's power authority was scheduled to complete a restructuring agreement on its $9.4 billion of total debt by Wednesday.
The working group's plan, due to Gov. Alejandro García Padilla over the weekend, is seen as a first step to determining how deep bondholders' losses will be, after he declared the debt to be un-payable, and said he would push for a moratorium on payments. The plan may not be released to the public until a later date, a source in the Puerto Rico legislature said.
The Puerto Rico Electric Power Authority has been in talks with its forbearing bondholders for more than a year and was expected to be negotiating through the weekend.
The Fiscal and Economic Recovery Group was formed in the aftermath of a Puerto Rico-commissioned report that concluded that the commonwealth's public debt was unpayable. The so-called Krueger Report called for the government to make a series of changes to its government operations, economy, and regulations, as well as debt.
Though García Padilla immediately said he disagreed with some of the recommendations, he said many of the ideas were interesting. He appointed his chief of staff, secretary of justice, president of the Government Development Bank for Puerto Rico, and the presidents of the Senate and House of Representatives to staff the Working Group. The group is to make recommendations in a broad range of areas similar to those addressed by the Krueger report.
The Senate and House of Representatives presidents have appointed their chiefs of staff to serve in their places.
The six page executive order that created the group indicated the plan should address the public debt, saying, "The proposed plan of fiscal adjustment and economic development of Puerto Rico should require that the aggregate debt of Puerto Rico and its instrumentalities fit so that it can be repaid on sustainable terms." However, a government source has said the plan will not directly detail how this would be accomplished.
According to the governor, the Fiscal and Economic Adjustment Plan will advocate measures:
"Establishing the parameters for a five-year fiscal plan; proposing additional cuts in spending - including cuts in some services - to avoid an increase in taxes; restructuring the Department of Treasury to increase the efficiency of income gathering; promoting alliances with the private sector to provide some of the services that are today provided by the public sector …; radically changing the way in which we work with government finances and economic statistics, to establish greater transparency and credibility; guaranteeing our citizens' essential services and our pensioners a just income; [and] creating a fiscal board which, outside political considerations, will guarantee the continuity and honor of the commitments agreed upon by us during the restructuring process."
Earlier this week the El Nuevo Día news organization reported on what it called a draft of the plan, which indicated that the government would seek reductions in the government's debt as well postponements in its payment.
García Padilla has since said that the draft El Nuevo Día got ahold of is not the one that either he or the group was considering, according to a government source.
If it is reached, the PREPA plan, dubbed the Restructuring Support Agreement, would cover in detail the restructured terms of the authority's debt, possibly including the length of a moratorium on payments.
The bondholders have repeatedly agreed to forbearance periods with the authority only to reach the periods' ends and agree to extend the periods' further. In late July a source close to the bondholders said that Tuesday's deadline is very important.
The creditors' forbearance is not planned to end until Sept. 15. However, if the debt agreement is not reached by the end of Tuesday, the creditors could declare the authority in breach of the forbearance. The bondholders and the other creditors could go to the court system to seek the right to appoint a receiver to run the authority.
