Bond insurer National expresses willingness to negotiate with Puerto Rico

By The Star Staff

Bond insurer National Public Finance Corp. has written to the Financial Oversight and Management Board for Puerto Rico (FOMB) to inform the entity created by the U.S. Congress to manage the island’s fiscal restructuring that it is ready and willing immediately to negotiate a revised commonwealth debt deal in good faith and to engage across other instrumentalities to help move Puerto Rico out of bankruptcy.

“The people of Puerto Rico, the U.S. Congress and the Court presiding over the Commonwealth’s Title III case expect nothing less. At the October 28, 2020 omnibus hearing, [federal] Judge [Laura Taylor] Swain established a deadline of early next year for the FOMB to propose a revised POA [plan of adjustment] and confirmation process,” National said in its letter. “During that hearing, Judge Swain stated that she expects ‘broader collaboration in negotiations toward the Amended Plan’ and ‘that negotiations during this period are expected to be ones in which the Oversight Board and all relevant stakeholders will act in good faith and responsibly toward the goal of … a substantially consensual plan’ (emphasis added).

Judge Swain stressed that the process should be ‘as consensual as possible’ and have ‘as broad support as possible’ because ‘that is so terribly important for efficient progress and for progress that redounds to a good result for creditors and for Puerto Rico.’”

National said it agrees with these sentiments and stands ready to comply.

The Commonwealth POA filed on Feb. 27 of this year, and the plan support agreement on which it was based, was negotiated among a limited subset of creditors representing a narrow spectrum of interests, and promised a contested, prolonged and costly confirmation battle.

“Even putting aside National’s concerns regarding certain creditors’ trading activities during the mediation period, and your subsequent referral of those concerns to the Department of Justice, this POA would not have been confirmed, further delaying the Commonwealth’s re-entry into the capital markets,” the firm said. “A more inclusive process is far more likely to lead the Commonwealth toward a consensual plan and a timely exit from bankruptcy, and fulfill PROMESA’s [the Puerto Rico Oversight, Management and Economic Stability Act] goals.”

As one of Puerto Rico’s largest creditors and long-term partners, National owns or insures some $1.2 billion in bonds issued or guaranteed by the commonwealth and more than $2 billion of debt issued by certain commonwealth instrumentalities. To date, National has paid approximately $1.6 billion in insurance claims to bondholders, ensuring they received all scheduled principal and interest payments that the commonwealth and its instrumentalities have failed to make since 2015, the letter said. Moreover, based on the nature of National’s business and exposure, National has the ability to agree to creative and flexible solutions, the bond insurer added.

“National has proven this already as an active and constructive participant in the Title III proceedings of the Commonwealth and its instrumentalities. National is a signatory to the Puerto Rico Electric Power Authority’s Restructuring Support Agreement, and served as one of the largest creditors in the negotiation and implementation of a global resolution culminating in the successful restructuring of over $17 billion of debt issued by Puerto Rico’s Sales Tax Financing Corporation (COFINA),” the firm said in its letter. “National played a vital role in helping advance these restructurings, working together with the FOMB and other creditors to agree to substantial debt reductions that allow such instrumentalities to achieve financial stability. Once again, National is prepared to work collaboratively and pragmatically with the FOMB and other stakeholders on a POA for the Commonwealth.”

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