Puerto Rico has made significant headway in its years-long effort to pay down $129 billion in debt. The island’s oversight board, tasked with creating a debt repayment plan, has passed a deal with creditors who hold $35 billion in general obligation bonds. It is a move that will save Puerto Rico about $24 billion and, says The New York Times, offers “a shorter path out of bankruptcy.”
According to Reuters:
The deal would cut $35 billion of bonds and claims to about $11 billion as it increases the ranks of general obligation (GO) and Public Buildings Authority (PBA) bondholders that signed onto a plan to restructure core government debt and more than $50 billion in pension obligations that the board filed in U.S. District Court in September.
Yet The Times reports that the new agreement “does not include bonds issued by Puerto Rico’s power authority or the other bodies that provide drinking water and public works on the island.” It also does not address how to repay approximately $50 billion in pensions that the island owes to retired government workers.
In 2016, Puerto Rico nearly defaulted on a $2 billion payment to creditors. In response, in June 2016, the United States Congress passed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). It provided the commonwealth with relief from its then-$72 billion in debt and created a seven-member control board to oversee creditor and court negotiations with the goal of reducing the debt.
Following the passage of PROMESA and amid efforts to structure a debt repayment plan, the island has faced three significant hurdles: the destruction caused by 2017’s Hurricane Maria; a series of earthquakes in 2020 that highlighted the post-Maria weaknesses that remain in infrastructure; and a change in leadership in the White House from President Barack Obama to President Donald Trump, who has openly attacked Puerto Rican elected officials and delayed millions in recovery money from reaching the U.S. commonwealth.
For all of these setbacks, The Times reports that “the government has built up a large supply of cash. That’s mainly because it has been sitting on the money it would have been paying to bondholders had it not defaulted in 2016.” This surplus resulted in the island being able to improve the debt restructuring deal for bondholders.
While the deal was approved by the oversight board, it must now be passed by Puerto Rico’s legislature.