Articulo publicado por Debtwire, una publicacién internacional especializada con sede en Londres, presencia en 65 ciudades y que cuenta con 600 reporteros y analistas. DEBTWIRE Puerto Rico credit unions make “point-of-entry” restructuring proposal to US Congress 03 Mar 2016, 11:30 GMT 5 Puerto Rico's 25 largest credit unions presented a debt restructuring proposal last week to the US House Natural Resources Committee. The proposal balances the interests of investors who bought in at par with those who purchased at deep discount, according to a copy of the proposal seen by Debtwire Municipals. ‘The Ad Hoc group of credit unions ~ which holds 56% or USD 4.8bn of the credit unions’ total assets -- has contracted Samuel A. Ramirez & Co. Inc. and island law firm Sosa Llorens, Cruz Neris & Associates as financial and legal advisors. This is the third proposal to restructure island's debt. The commonwealth first floated a proposal in February that would swap USD 49.2bn in tax-supported debt for new bonds split between a base bond, and a growth bond that will throw off cash flow once the island meet’s certain financial benchmarks. Puerto Rico Sales Tax Financing Authority (COFINA) senior stakeholders then floated a restructuring proposal that would free-up sales tax revenue for the government's general fund. At the moment, general obligation (GO) bondholders also are working on a fourth proposal, as reported, Point-of-entry The group of credit unions proposes paying creditors back based on a set amount of profit over the price at which investors bought in or “point-of-entry,” states the proposal the Ad Hoc group sent to the Natural Resources Committee on 25 February. “The exchange would seek to match the shortest tenor of the new bonds to those investors who acquired the bonds at the lowest price. Conversely investors that acquired their bonds at par would be offered bonds of the longer tenor,” the proposal states. This would allow those who bought in at par to be made whole, while those who purchased at distressed levels would receive a modest profit margin above their entry price and never exceeding par. “A. scenario prepared by Ramirez & Co. for the restructuring of all GDB [Government Development Bank for Puerto Rico] outstanding debt under the proposed alternative shows the GDB would receive principal payment relief over a 6-year period and would extend its tenor 1profile from an average life of its bonds of 4.7 years to 15.4 years. The principal reduction would amount to USD 1.042bn or 28.5% of its total debt,” states the proposal. Similar workouts could be done with island’s other liabilities. The commonwealth has USD 10Sbn in unfunded pension liabilities, tax-supported and non-recourse debt, according to Debrwire Municipals analysis of a November 2015 periodic commonwealth financial update. “We acknowledge that these priorities may require federal assistance, especially considering imminent maturities that become due in coming months,” the proposal states. Proposal’s benefits ‘A point-of-entry restructuring would increase Puerto Rico’s credibility, market access and liquidity by validating non-speculative investors such as mutual funds and monoline insurers who have backed the island for decades. Because of the reinstated market liquidity, investors would be able to exit their positions prior to maturity, according to the proposal. The proposal would reduce the risk of litigation, compared with government's base’ growth bond proposal, by providing a uniform offer to holders of commonwealth paper, while allowing speculators to realize profits. “These terms make it difficult to for speculative investors to challenge an offer that provides a reasonable return solely based on the fact said offer does not provide extraordinary gains,” states the proposal. By pricing the exchange offer at the actual market entry point would align the exchange offer to “credit seniority principles similar to those applied in bankruptcy proceedings, thus strengthening inherent faimess,” the proposal states. Economic threat ‘The commonwealth’s super-bond and base/growth bond proposals would be the final nail in the coffin of Puerto Rico’s economy that has be in recession for a decade. The proposals amount to 57% loss of the par value of Puerto Rico investors, who own 20% or USD 13bn of commonwealth debt. This translates into a USD 7.7bn capital loss to Puerto Rico’s economy, on top of the approximately the USD 60bn to USD 70bn in local capital lost over the past decade, the credit union group said. ‘These proposals also uniformly punish Puerto Rican and other traditional investors such as mutual funds and pension plans, while favoring speculative investing. While credit unions’ proposal prevents speculators from realizing extraordinary profits, the proposal is in the best interest of all because it protects Puerto Rico's economy and the commonwealth’s ability pay all its debts, the proposal states.Credit unions duped The current threat to the stability of the island’s credit unions is not because of the credit unions’ lending practices, but their decisions in 2009 to significantly increase government holdings. Credit unions tripled their holdings in commonwealth debt from 2009 to 2012, the proposal states. ‘A footnote in the proposal details how commonwealth forced credit unions to take this risky stance by: selling unsuitable taxable investments to tax-exempt credit unions, improperly using examination powers, threats of punitive taxation, and “active inducement through COSSEC’s [Spanish acronym for the Public Corporation for the Supervision and Insurance of Cooperatives} issuance of circular letters promoting the acquisition of Puerto Rico paper and increasing the regulatory limit for these investments.” The credit union Ad Hoc group favors ending the pursuit of Chapter 9 for Puerto Rico in favor of a consensual restructuring. However, the unions favor a joint commission of federal and local oversight from the executive and legislative branches to ensure Puerto Rico’s debt is restructured in an open, transparent, apolitical and fair manner. by Xavira Neggers Crescioni in San Juan