Puerto Rico is currently struggling to deal with its $70 billion debt. On Monday, the U.S. territory put out a new proposal in order to try and restructure part of their large debt in order to gain them some time to implement a fiscal growth plan as impeding multi-million-dollar payments approach the territory’s dwindling cash reserves.
In the proposal, government officials intend to take $49 billion of debt and exchange it for $28 billion of base bonds and approximately $2 billion of tax-exempt capital appreciation bonds. There is also a special clause in the plan for those who live in Puerto Rico and hold certain bonds. It was stated by officials that the group could receive up to $8 billion of local holder base bonds that repays the full principal they originally invested at a 2 percent interest rate.
Puerto Rico’s government officials stated that the new deal could help them cut about $12-$16 billion from its debt load. They believe this would allow the government to keep providing essential services, amongst other things. The officials stated that the deal was deliberated with investors’ advisors towards the end of March.
While some experts have stated that the deal may not be aggressive enough, it was a smart move by the government officials. It is still uncertain how U.S. Congress is going to address Puerto Rico’s economic crisis. Secretary of State Victor Suárez spoke on the matter, saying, “The fact is that we will only be able to address these issues by working together.”
Earlier this month, in order to help the island avoid a default in July, a group of investors offered to defer repayment of nearly $2 billion in principal for the next five years. Puerto Rico’s government rejected the deal, as it would only lead to more debt in the future. Puerto Rico has been asking U.S. Congress to approve a debt-restructuring mechanism while the local government recently approved a debt-moratorium bill and declared a state of emergency at the Government Development Bank.
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