SAN JUAN, Puerto Rico (AP) — Puerto Rico is one step closer to restructuring more than $17 billion worth of debt involving sales-tax bonds issued by the U.S. territory's government, representing nearly a third of the island's overall bonded debt.
A federal control board that oversees Puerto Rico's finances announced Wednesday that bondholders have approved the restructuring plan after more than 8,000 of them voted, according to unaudited voting results. The announcement comes as Puerto Rico tries to restructure a portion of its more than $70 billion public debt load while it struggles with a 12-year recession and the aftermath of Hurricane Maria.
A federal judge overseeing the island's bankruptcy-like process is scheduled to hold a hearing on the restructuring plan starting Jan. 16. If approved, the deal will represent 40 years' worth of payments for Puerto Rico's government. Senior bondholders, who hold nearly $8 billion, will be first to collect, receiving 93 percent of the value of the original bonds. Junior bondholders, many of whom are individual Puerto Rican investors and overall hold nearly $10 billion, will collect last and recover only 54 percent.
Board director Natalie Jaresko said in a statement that the restructuring plan is key to Puerto Rico's recovery, but some economists say the deal could end up costing the government more in the long run and warn that its ability to pay may diminish in the future.
More than 26,000 people have signed a petition urging Judge Laura Taylor Swain to reject the plan, saying they worry about more cuts for pensioners and employees, reductions in essential services and increases in the cost of living if Puerto Rico's government is unable to pay. Critics note that the government recently lowered the sales-and-use tax for prepared foods from 11.5 percent to 7 percent, and that billions of dollars in federal hurricane recovery funds will provide only a temporary economic boost.
"Approving this agreement is a roadmap for more irresponsible indebtedness and will lead the government to a new default," the petition reads.
In November, Puerto Rico's government completed its first debt-restructuring deal since announcing it was bankrupt more than three years ago. The agreement was finalized with creditors holding more than $4 billion in debt issued by the now-defunct Government Development Bank, which once issued loans and oversaw the island's debt transactions but ceased operations in March amid the recession.