Puerto Rico Bond Prices Gain on Pact with Aurelius, Holders

(Bloomberg) -- Prices on some Puerto Rico general obligations increased Monday after Aurelius Capital Management and other investors agreed to a tentative plan to reduce the island’s debt by about 40%, a key hurdle in its record bankruptcy.

Puerto Rico general obligations with an 8% coupon traded at an average 74.3 cents on the dollar as of 9:45 a.m. New York time, up from 69.6 cents on Feb. 4, the day before speculation grew that the parties would sign a pact, according to data compiled by Bloomberg. The potential debt restructuring plan offers holders of those bonds 65.4 cents through a debt exchange and a cash payment.

General obligations with a 5% coupon and maturing in 2041 traded Monday at an average 78.2 cents on the dollar, up from 73.9 cents on Friday, data compiled by Bloomberg show.

Puerto Rico’s financial oversight board and investors holding $8 billion of general obligation and commonwealth-guaranteed debt agreed to the terms, which would cut those bonds’ outstanding principal to $10.7 billion from $17.8 billion, a 40% reduction.

It brings together two sparring bondholder groups that had been at odds over the past year over whether debt Puerto Rico sold in 2012 and 2014 is invalid. Aurelius and Autonomy Capital, which hold securities sold in those years, joined the tentative agreement, which other bondholders signed in June, according to a securities filing.

Aurelius’s participation in the debt proposal gives momentum to Puerto Rico’s bankruptcy process and may bring a sigh of relief from some parties considering the hedge fund’s history in its negotiations with Argentina. Aurelius was part of a group of credits that for 13 years fought Argentina in court for repayment.

“The new agreement is another step forward for Puerto Rico, one that gets the island much closer to ending bankruptcy and to the beginning of a true economic recovery,” Natalie Jaresko, the board’s executive director, said in a statement. “Bankruptcy is holding Puerto Rico back. We need to resolve it with this agreement.”

The board needs Puerto Rico lawmakers to authorize the debt exchange. Governor Wanda Vazquez said Sunday she doesn’t support the plan as it looks now because it improved bondholder terms without easing pension cuts for public workers.

Resolving debt tied to Puerto Rico’s central government is a key issue in the bankruptcy process. Any deal to restructure the island’s obligations would need approval from U.S. District Court Judge Laura Taylor Swain, who is overseeing the island’s bankruptcy.

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

To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, Christopher Maloney

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