• A public plan would allow investors to negotiate in debt talks
  • The commonwealth is looking to reduce $70 billion of debt

Puerto Rico officials may release details to the public of a proposal to restructure the commonwealth’s $70 billion debt burden as soon as Monday, according to three people with knowledge of the discussions.

The plan may be released so that bondholders can participate in the negotiations without having to sign non-disclosure agreements, which limit them from trading the securities, said the people, who asked for anonymity because the talks are private. Puerto Rico presented financial advisers and lawyers for different investor groups with its debt-reduction plan on Friday, giving those consultants the first glimpse of the island’s strategy for how to treat the debt.

“This would be a real productive way to allow everyone to be involved,” said Daniel Solender, who manages $17 billion of state and local debt, including Puerto Rico bonds, as head of municipals at Lord Abbett & Co. in Jersey City, New Jersey. “If they really want to negotiate with the firms representing the individual clients, making it public is a real positive step.”

Debt Defaults

Puerto Rico and its agencies piled on debt by borrowing for years to fill budget deficits. Governor Alejandro Garcia Padilla in June said he would seek to reduce the island’s obligations by asking investors to take losses on their securities or wait longer to be repaid. A Puerto Rico authority defaulted for the first time in August and the administration in December began redirecting revenue used to repay agency debt to instead pay general-obligation bonds, forcing a second authority to default Jan 4.

Puerto Rico’s debt-restructuring proposal asks bondholders to accept lower values for their investments in a voluntary debt exchange, according to two people. The island’s bonds have different repayment pledges, with the commonwealth proposing to treat each credit separately, the two people said. For example, subordinate sales-tax bonds that are repaid after senior sales-tax debt would have a weaker repayment plan under the commonwealth’s proposal, according to the two people.

The plan involves investors swapping the securities for two different types of bonds that delay payments for a few years. The first would offer a fixed rate in 2018 and increase to a 5 percent interest rate in 2021, the people said. The second would suspend interest for 10 years, with the interest then calculated off of the island’s finances, according to the people.

The Wall Street Journal reported details of the debt-exchange proposal earlier. Barbara Morgan, a spokeswoman who represents the Government Development Bank at SKDKnickerbocker in New York, declined to comment on the Wall Street Journal article.

“It has been, and remains, our commitment to work with our creditors to achieve a comprehensive set of solutions to our economic and fiscal crisis that will ensure the long-term stability of the commonwealth without placing an undue burden on any one party,” Garcia Padilla said in a statement Friday.

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