(Adds restructuring proposal by Franklin and Oppenheimer; adds
quotes from governor; updates results of protests)
By Karen Pierog and Daniel Bases
CHICAGO May 1 Benchmark Puerto Rico general
obligation bonds rose on Monday, bolstered by promised stopgap
federal healthcare spending that would help the financially
strapped U.S. territory even as it faces a midnight deadline to
reach a restructuring deal on its $70 billion in debt.
The healthcare assistance under a deal on federal government
spending follows Saturday's rejection by bondholders of the
Puerto Rican government's debt restructuring offer to repay as
much as 77 percent of general obligation (GO) debt and 58
percent of tax-backed bonds.
On Monday, a creditor group led by mutual funds Franklin
Advisers and OppenheimerFunds said it had offered a separate
restructuring proposal late last month to save $15 billion in
debt service relief, but that it was ignored by Puerto Rico's
Without a last-minute agreement or a move by Puerto Rico to
seek an in-court debt workout similar to bankruptcy, bondholders
and other creditors are expected to file a wave of litigation
over the island's bond defaults starting at midnight Monday.
Regardless of the path Puerto Rico takes, the likelihood is
for cuts to government services, including healthcare. Thousands
of Puerto Rican's took to the streets on Monday to protest
The in-court option, known as Title III, is a provision of
the 2016 federal rescue law known as PROMESA.
Bond prices rose in response to Congressional negotiations
late Sunday that included a $295 million boost in Medicaid
funding for Puerto Rico as part of a budget deal to avoid a U.S.
The federal government's Medicaid help may be buoying Puerto
Rico's bonds by making "participants hopeful there will be
potentially some assistance down the road that mitigates the
lowball first salvo in the negotiations," said Shaun Burgess,
portfolio manager and lead trader for Puerto Rico strategy at
Sarasota, Florida-based Cumberland Advisors.
Burgess, who is responsible for $150 million of insured
Puerto Rican bonds, said the commonwealth's offer was "not even
close to a good proposal."
In a statement on Monday, Stephen Spencer, a financial
adviser to the group led by Franklin and Oppenheimer, said it
offered two restructuring deals. One would have saved $15
billion in overall debt service relief. The other was specific
to sales tax-backed debt, known as COFINA debt, and would have
saved $4.2 billion in debt service for that particular credit.
The proposals "were essentially ignored," Spencer said.
A representative for Governor Ricardo Rossello could not be
immediately reached on Monday.
Ramon Rosario, Rossello's public affairs secretary, told
reporters that the government is still considering filing for
Title III bankruptcy. “If creditors remain intransigent, we will
go to Title III in defense of Puerto Rico’s people,” he said.
Ultimately, the decision of whether and when to file a Title
III bankruptcy belongs to Puerto Rico's federal financial
oversight board, not the governor, though both sides have said
they hoped to work cooperatively.
The spread of Puerto Rico 30-year GO bonds over Municipal
Market Data's benchmark triple-A yield scale fell to 565 basis
points on Monday, after widening to 585 basis points on Friday
from 575 basis points on Thursday.
Benchmark Puerto Rico bonds due in 2035, and carrying an 8
percent coupon, traded up 1.1 points in price to a bid price of
64.1, up from a record low of 60.05 on March 30.
Puerto Rico’s fiscal turnaround plan, which has been
certified by the oversight board, proposes drastic cuts to debt
and government services alike, including to healthcare spending.
There would also be cuts in fringe benefits to some public
employees, reduced subsidies to municipalities and the
University of Puerto Rico, and reduced benefits to pensioners.
Thousands protested the austerity measures on Monday in San
Juan, the capital, marching toward the city's financial center,
known as the Golden Mile. Some protesters broke windows and
scrawled graffiti on buildings.
There were some scuffles with police and seven arrests,
according to reports from Rossello's office.
Speaking to reporters Monday evening, Rossello said
organizers of the protest “lost control of the situation," and
that police "had orders to intervene."
"There is no justification for today's incidents," he said.
(Reporting by Daniel Bases and Karen Pierog in Chicago;
Additional reporting by a contributor in San Juan; Editing by