Puerto Rico Continues Quest to Eradicate Debt
Puerto Rico is trying another financial strategy to finally eradicate its whopping $72 billion debt. The country has recently suggested a bond swap to some of its creditors for the almost $50 billion debt, Fox News Latino reports.
The publication reveals that the Puerto Rican government recently announced that in light of their long-standing debt, a bond swap, an overseeing authority in its finance and a restructuring deal are some of their proposals to finally erase the debt that has been leading their nation to a humanitarian crisis.
The bond swap proposal suggests that $49 billion of the total debt will be cut into two: $26.5 billion of base bonds, which includes a fixed interest rate, and $22.7 billion of growth bonds, which is payable depending on the condition of the government's revenues.
Not only that, the island will also be urging the U.S. to oversee their finances. According to the news outlet, the U.S. House Subcommittee on Indian, Insular and Alaska Native Affairs is already looking into a federal fiscal control board in its most recent hearing.
Meanwhile, economist Gustavo Velez urged Puerto Rico to act fast before it's too late. "They have to do that now," Velez said as quoted by the news agency. "The systems are depleting at a very fast rate. They will be left without money by 2018."
However, the bond swap proposal, where bonds are sold for another set of bonds, is not very appealing for creditors, CNN Money noted. "It's frustrating, and it doesn't feel like a credible offer," a source close to major creditors told the publication.
David Tawil, President of Maglan Capital that previously owned Puerto Rican debt, is not so impressed about the restructuring deal. "I don't think this plan is going to get very far," Tawil said as quoted by the news agency. "I don't see anywhere in the capital structure to make money now."
Meanwhile, it is also worth noting that creditors do not always belong to giant corporations but are individual investors. "We encourage the commonwealth to try again and to remember that a majority of the debt is held by individual investors, many of whom are seniors and retirees," said Matthew Kandrach, a representative of Main Street Bondholders, a coalition of Puerto Rican bondholders.
The long-standing debt, which is now at nine years, has also created a serious humanitarian crisis. Since the government uses 36 percent of its revenues to pay off their debt, teachers and police officers' pay are sometimes late, the publication reports.
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