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Puerto Rico Proposes New Debt Restructuring Deal as Cash Dwindles

by Associated Press / / Source: Associated Press
Image: Puerto Rico Struggles With Impending Debt Crisis
SAN JUAN, PUERTO RICO - NOVEMBER 12: Old San Juan, the center for Puerto Rican tourism, is viewed on November 12, 2013 in San Juan, Puerto Rico. The island territory of the United States, Puerto Rico, is on the brink of a debt crisis as lending has skyrocketed in the last decade as the government has been issuing municipal bonds. Market analysts have rated those bonds as junk and suspect it's 70 billion dollar debt might be unserviceable in the near future. With no industry other than tourism and the recent collapse of the real estate market, the way out is unclear. (Photo by Christopher Gregory/Getty Images)) / Getty Images

Puerto Rico released a new proposal Monday to restructure part of its $70 billion debt to buy time to implement a fiscal growth plan as cash reserves deplete.

Government officials said Puerto Rico could cut $12 billion to $16 billion from its debt load under the proposal. They said this would allow the government to keep providing essential services, pay back local vendors and suppliers, boost liquidity and fund retirement systems, among other things.

"The fact is that we will only be able to address these issues by working together," said Secretary of State Victor Suarez.

Under the plan, the $49 billion in debt would be exchanged for $28 billion of base bonds and nearly $2 billion of tax-exempt capital appreciation bonds. The voluntary exchange would be a swap of existing debt for the two new classes of of bonds. That would allow creditors to recover the full principal they invested regardless of future economic growth rates.

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The plan also includes a special clause for those who live in Puerto Rico and hold certain bonds. Officials said that 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.

RELATED: Puerto Rico Offers Some Proposals to Tackle Its Debt

Investors' groups have proposed tougher terms. Puerto Rican officials said they discussed the plan with investors' advisers in late March.

The plan comes as Puerto Rico urges U.S. Congress to approve a debt-restructuring mechanism. The local government recently approved a debt-moratorium bill and declared a state of emergency at the Government Development Bank, which issues loans and oversees debt transactions.

The move means, in part, that officials will only allow withdrawals to fund necessary costs for health, public safety and education services. It does not place a moratorium on the bank's principal or interest payments. Officials have warned the bank could default on a nearly $423 million payment due to creditors in May.

The U.S. House is due to take up its own proposal on Puerto Rico's debt in a committee hearing this week.

This report includes material from Reuters.

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