Photographer: Derick E. Hingle/Bloomberg

Puerto Rico Draws Bondholders' Ire for Comments on Debt Talks

  • Territory facing May 1 deadline to avoid mire of lawsuits
  • Lawyer says statements suggest island ‘comfortable in default’

Puerto Rico’s negotiations with bondholders don’t appear off to a promising start.

Less than a week after an initial meeting between creditors and the crisis-wracked Caribbean island, a lawyer for a group of hedge funds and other owners of Puerto Rico’s general-obligation bonds issued a statement criticizing Elias Sanchez, a top aide to Governor Ricardo Rossello, for speaking publicly about the talks at a conference in San Juan.

Sanchez said the government hasn’t made any restructuring offers to debt holders -- a disclosure that was cast as at odds with the confidential nature of the discussions.

“Mr. Sanchez’s disregard for the rules of the mediation agreement and his distortion of Promesa befits a government getting comfortable in default, not one aspiring to be taken seriously again in the capital markets,” Andrew Rosenberg, a partner at Paul Weiss Rifkind Wharton and Garrison, who advises a group of bondholders, said in an email Wednesday.

Comments made by Sanchez and Rossello were appropriate and didn’t reveal confidential information, John Rapisardi, a partner at O’Melveny & Myers LLP, wrote in a letter today to Judge Allan Gropper, who is retired and serving as mediator for the Puerto Rico debt talks.

“Mr. Sánchez was simply reiterating what has been, and continues to be, the government’s desire and perspective: to receive constructive proposals from creditors so all parties can move forward in good faith with negotiations that will lead to a consensual agreement,” Rapisardi said in the letter.

The tiff shows the long odds of Puerto Rico meeting the stated goal of securing an agreement to restructure its debt by May 1, when the island risks being bogged down by a torrent of lawsuits that the U.S. financial rescue legislation, known as Promesa, has kept temporarily on hold. It took Puerto Rico over a year just to reach a deal with the creditors of its electric company -- a much smaller task than contending with its entire $70 billion debt, which was issued by more than a dozen arms of the government.

If a voluntary agreement can’t be struck, Puerto Rico can seek to have its obligations written down in court, thanks to another provision of the Promesa law.

On Tuesday, Rossello said he’s still seeking to craft an agreement before May 1, but he’s waiting for a proposal from creditors, according to a report in El Nuevo Dia, the island’s biggest daily newspaper.

“That is the desire, but the ball is now in their court,” Rossello said at a conference, according to the newspaper. “Now they have to make an offer. Without it, we cannot move forward.”

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