- Puerto Rico struck a deal with bondholders Sunday that reduces debt by $US24 billion while agreeing to pay back debt 10 years sooner than before.
- Puerto Rico has struggled as two hurricanes hit the island months after it had filed for bankruptcy.
- Wanda Vázquez, governor of Puerto Rico, opposes the new deal on the grounds that it protects bondholders more than retirees.
- Visit Business Insider’s homepage for more stories.
A deal between Puerto Rico and creditors could inch the country one step closer to an exit from bankruptcy.
The Financial Oversight Board reached a deal with bondholders Sunday that would write off $US24 billion in debt, reducing $US35 billion in original debt to under $US11 billion. That cuts $US1 billion more debt than Puerto Rico previously planned to. In exchange, Puerto Rico would pay off all legacy debt in 20 years, which is 10 years sooner than it had previously agreed to, the board said in a statement.
Puerto Rico declared banruptcy in 2017 in order to restructure around $US120 billion in debt and liabilities, Reuters reported. Later that year, Hurricanes Irma and Maria devastated the island, causing what amounted to more than $US100 billion in damage. The commonwealth filed a “plan of adjustment,” meant to lay out a path to end bankruptcy, in September 2019, according to an Oversight Board presentation.
Bondholders, who collectively hold $US8 billion of debt, signed onto the updated plan Sunday. The agreement would reduce the value of bonds by 29% on average for general obligation bonds and 23% for Public Buildings Authority bonds, the statement said.
Still, that recovers more value compared to the 36% and 65% value reductions, respectively, set in the September agreement, Reuters reported.
“The new and more favourable agreement is a win for Puerto Rico,” said the oversight board’s chairman Jose Carrión in the statement, adding that the deal has much more more support from bondholders than the September deal did.
But the plan still needs the support of Puerto Rico’s legislature and a federal judge – and Puerto Rico’s governor, Wanda Vázquez, opposes the deal because it improves protections for bondholders but makes no similar new accomodations for pension holders,The Washington Post reported.
The new deal made no changes to pension policy. As it stands, around 75% of pension holders, retired now or later, will not see their benefits change – but some could see their monthly retirement benefits fall by as much as 8.5%, according to the presentation.
Business Insider Emails & Alerts
Site highlights each day to your inbox.