Country Report Puerto Rico
- ID: 2138738
- October 2015
- Region: Puerto Rico
- 17 Pages
- The Economist Intelligence Unit
The administration of the governor, Alejandro García Padilla, has proposed the issuance of a so-called "superbond" in exchange for around US$46bn of Puerto Rico's US$73bn public-sector debt. This is the first concrete proposal for debt rescheduling since Mr García Padilla admitted in June that the Caribbean island's debt was unpayable. The reaction to the superbond proposal from bond holders has been negative. The Economist Intelligence Unit expects that Puerto Rico will avoid a large disorderly default, but the risk to this forecast is rising.
There is widespread recognition that some form of debt relief is required for Puerto Rico's onerous debt burden. Public debt is more than 100% of GDP (which itself is shrinking), a recovery plan released in September projected a further cash shortfall of US$28bn over the next four years and debt servicing payments are estimated to account for around one in every five dollars spent by the central government. The government says that it will run out of cash in November, leaving it to choose between providing services to its citizens or paying its creditors. A clear proposal on how to proceed is therefore to be welcomed.
Government officials sent letters to bondholders in September saying that it will seek to renegotiate general obligation bonds (GOs), bonds guaranteed by a carve-out from the sales tax (Cofina bonds) and bonds issued by government-owned corporations. It wants to swap outstanding bonds for a new instrument with an extended maturity and lower interest costs than the existing debt. Initially, the administration seemed also to be seeking to impose a "haircut" to reduce debt, but this was not mentioned as part of the superbond initiative.