| NEW YORK
NEW YORK A war of words rather than talk of
reconciliation is the latest indication that Puerto Rico and its
creditors are getting nowhere fast in their negotiations to
restructuring the island's $70 billion in debt before mediation
is due to end on Friday.
A group of general obligation debtholders accused the
government on Wednesday of breaking confidentiality rules after
Elias Sanchez, a close adviser to Governor Ricardo Rossello,
said Puerto Rico was waiting for creditors to make a
Creditors issued a statement saying the offense "befits a
government getting comfortable in default.”
Rossello, through a lawyer, fired back the same day with a
letter to the island's federally appointed financial oversight
board, saying Sanchez "was simply reiterating" the government's
desire "to receive constructive proposals from creditors."
Puerto Rico has until May 1 to reach a debt-reduction deal
under a financial rescue law dubbed PROMESA, or enter an
in-court restructuring process akin to U.S. bankruptcy.
Far from discussing how to split up Puerto Rico's limited
financial pot, parties are seen struggling to agree on the size
of the pot in the first place.
The island's fiscal turnaround plan, approved last month by
the oversight board, projects $800 million a year available to
pay debt, less than quarter of what Puerto Rico owes in next
In this week's mediation, creditors are discussing how much
that number would have to move to get them to the table, said
creditor-side sources, who declined to be named because talks
are private. One source pegged the figure around $1.3 billion;
another said about $1.8 billion.
"How can we negotiate when we haven't even got past the
deficiencies with the fiscal plan?" said a third.
Puerto Rico's benchmark 2035 GO bond price has plunged since
approval of the turnaround plan, which forecasts bigger haircuts
than creditors expected.
The dramatic discord is at least partly rooted in the
elephantine gap between investors' expectations for Puerto
Rico's oversight board, and its reality.
Creditors began lobbying for the board after Rossello's
predecessor, the left-of-center Alejandro Garcia Padilla, called
Puerto Rico's debt "unpayable" in 2015, and later pushed a plan
to slash repayments by about half.
Creditors got what they wanted: In mid-2016, with
restructuring talks dead, U.S. Congress created the board
In January, the moderate Rossello replaced the populist
Garcia Padilla in the governor's mansion.
Creditor enthusiasm for the changes turned to shell-shock,
however, when the board in January began pushing debt cuts even
more draconian than Garcia Padilla's. "The board has been the
biggest disappointment," a creditor source told Reuters in
One government official said Rossello felt pigeonholed by
the board, forced to either push bigger-than-expected cuts, or
resist the board's projections and be viewed as having no
Others see Rossello as using the board as a political cover
for drastic cuts. "That's exactly what the board is for," said
one of the creditor sources.
One logistical challenge to a deal is how to recoup upside
for creditors if Puerto Rico grows. In a corporate bankruptcy,
bondholders can take a company's equity.
The closest municipal analog might be so-called growth
bonds, with payouts dependent on future growth.
But two creditor sources told Reuters they do not want
growth bonds, which they see as too hard to enforce in a
municipal setting. "How do you ever decide when a municipality
is in the money?" one of the sources said.