Puerto Rico Offers as Much as 77 Cents for G.O.s in Proposal

(Bloomberg) -- Puerto Rico is offering holders of its general-obligation bonds as much as 77 cents on the dollar while proposing as much as 58 cents on the dollar for its sales-tax debt, according to the commonwealth's latest creditor proposal.

The cash-strapped Caribbean island is negotiating with its investors just days away from a May 1 deadline to reach a restructuring accord or face a potential onslaught of legal suits.

Puerto Rico is offering to repay general-obligation bondholders a total of up to $10.25 billion on the $13.2 billion it owes, according to a creditor proposal dated April 24 and posted on midnight Saturday on the Municipal Securities Rulemaking Board's website, called EMMA. The island would also repay up to $10.2 billion on $17.6 billion of sales tax bonds.

Investors would exchange their existing securities for two different types of debt: tax-exempt senior bonds with a constitutional priority maturing in 30 years and cash-flow bonds that would be repaid after the senior securities, depending on the commonwealth's liquidity.

That structure gives general-obligation bondholders a recovery range of as little as 52 percent -- if Puerto Rico only repays the senior bonds -- and as much as 77 percent if the commonwealth repays both the senior debt and the cash-flow securities. The recovery range for sales-tax securities is 39 percent to 58 percent.

Puerto Rico is seeking to reduce its $70 billion debt load after years of economic decline and overspending. It will be the largest restructuring in the $3.8 trillion municipal-bond market. The island is operating under a federal oversight board that has the ability to seek creditor losses through a bankruptcy-like process.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net.

To contact the editor responsible for this story: Christopher Maloney at cmaloney16@bloomberg.net.