Puerto Rico's general obligation bondholders called for negotiations on the island's debt after a judge halted litigation between them and holders of the island's sales tax revenue bonds.
In a letter sent to Gerardo Portela Franco, executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority, and to José Carri-n III, chairman of the Puerto Rico Oversight Board, on Wednesday, a lawyer for the Ad Hoc Group of General Obligation Bondholders suggested negotiations take place from March 27 to March 31. The GO bondholders said they were also willing to meet before March 27.
The lawyer, Andrew Rosenberg with Paul, Weiss, Rifkind, Wharton & Garrison LLP, called for representatives of holders of the Puerto Rico Sales Tax Financing Corp (COFINA) bonds to join in the negotiations.
In their letter, the GO bondholders note that the U.S. First Circuit Court of Appeals ordered an indefinite stay on the Lex Claims, LLC et al. v. Alejandro García Padilla et al. case on Monday. This case involves disputes between the GO and COFINA bondholders over the legitimacy and precedence of their claims. As February, there was about $13.3 billion of GO and $17.9 billion of COFINA debt outstanding.
The board has treated a total of $51.9 billion of debt as being generally under the responsibility of Puerto Rico and thus under its fiscal plan's purview.
The negotiations would be part of the Puerto Rico Oversight, Management and Economic Stability Act's Title VI consensual debt negotiation process, which can run until May 1, when a stay on litigation allowed by PROMESA and the board will end.
In Puerto Rico Gov. Ricardo Rossell-'s Feb. 28 proposed fiscal plan, he said the board probably will start PROMESA Title III's court-supervised bankruptcy process before the stay elapses.
"I have to assume that the G.O. bondholders are at a minimum somewhat sincere in their desire to conclude the process as quickly as possible and trying to negotiate a resolution of the issues is certainly worth a major effort," said Joseph Rosenblum, director of municipal research at AllianceBernstein. "There certainly is something to be said about being perceived as reasonable and willing to negotiate.
"But as you are well aware, there are a number of complex issues that have slowed the process down and will contribute to making the reaching of a negotiated issue such a challenge," Rosenblum continued.
The Oversight Board had argued that it would be better for Puerto Rico's creditors, government, and board to spend their energies on the debt negotiations than on arguing the Lex Claims case.
Also in the letter, the GO bondholders say that it didn't make sense to first get a court-arranged mediator before starting negotiations, which the commonwealth has suggested. The GO holders say that the process of seeking a mediator would take too long, time was short, and it was therefore better to simply start negotiations.
In their letter, the GO bondholders indicated that the meetings will be held in secret.
