Puerto Rico is poised to slash $22 billion of debt on Tuesday, begin repaying bondholders for the first time in almost six years and start financing a broke pension fund that's on the hook for an estimated $55 billion.
It's the largest -- and at more than $1 billion in bankruptcy fees, the most expensive -- restructuring ever in the municipal-bond market. It's a major step in resolving the impoverished commonwealth's nearly five-year-long bankruptcy, after delays caused by hurricanes, political turmoil and the pandemic.
Shrinking its debt burden allows Puerto Rico to focus on growing its economy and strengthening its electrical grid, a source of frustration for residents and businesses paying some of the highest electricity rates in the nation while enduring chronic outages.
Nearly 44% of the island's roughly 3.3 million residents live in poverty. Its economy is projected to grow 2.6% this fiscal year, which ends June 30, and 0.9% in fiscal 2023, before shrinking the following year, according to estimates released in January by the commonwealth's federally appointed financial oversight board.
The debt-restructuring plan is the result of years of negotiations between the board, commonwealth officials, debt holders, bond insurers and labor groups. Some of the island's biggest investors include Aurelius Capital Management, BlackRock, Allianz, Nuveen and Invesco.
The island defaulted on its general-obligation securities in 2016, after years of borrowing to cover budget shortfalls, population decline and economic contraction.
Reducing the debt load involves a bond swap where investors receive new restructured general obligations in exchange for the commonwealth's existing securities. Bondholders will receive from 67.7 cents on the dollar to 80.3 cents, depending on the type of security they hold and when the commonwealth issued the debt.
Still, bondholders may need to rely on the oversight board for future payments. The panel last month revised Puerto Rico's current budget to include principal and interest payments after island lawmakers failed to approve those allocations.
WASHINGTON POST