Summary
Puerto Rico announced a five-year bond restructuring proposal.
Bondholders will be forced to make concessions.
U.S. House Democrats claim it's "unjust" for speculators to have restructuring input.
A significant question facing the politicians and bankers in charge of the debt reorganization is whether hedge fund investors, who recently bought the highly speculative bonds, should be treated the same as mom-and-pop retail investors. Those investors believed that they were investing in long term, safe and secure municipal bonds that their financial advisors at UBS (NYSE:UBS) and other firms recommended.
First, the plan.
"The new plan calls for restructuring about $47 billion of Puerto Rico's $72 billion in bond debt and carrying out an ambitious package of economic changes under the eyes of an independent financial control board," reported Mary Williams Walsh of the New York Times. "Virtually every element of the plan requires either concessions negotiated from creditors or legislation enacted in San Juan or Washington, suggesting a long and difficult road ahead."Should High-Risk Speculators In Puerto Rico Bonds Have A Seat At The Restructuring Table?
"Among the most striking aspects of the plan - and likely to be one of the most contentious - is the proposal to restructure Puerto Rico's general obligation bonds, which were sold to investors with an explicit constitutional promise that timely repayment would take priority over all other expenditures on the island," according to the Times report.
"For decades, general obligation bonds have been marketed as virtually default-proof, and a major restructuring of them now by Puerto Rico would raise unwelcome questions about the credibility of the time-honored "full faith and credit" pledge that stands behind such bonds," according to the Times. "Puerto Rico is not proposing to walk away from its bonds completely, but to pay its investors less."
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