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Island’s net tax-supported debt after adjustment plan implementation: 5.9% of GDP


Omar Marrero Díaz, executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority

By The Star Staff


The government’s net tax-supported debt after the implementation of the plan of adjustment will be 5.9% of its gross domestic product (GDP), a Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) presentation to the markets has revealed.


The percentage will then be lower than the island’s current tax-supported net debt, which is 55.1% of its GDP, according to the presentation slides, which were disclosed in an Electronic Municipal Market Access filing on Monday.


The debt deal “slashes government’s debt payments. Puerto Rico will now pay approximately 6.5 cents of every dollar collected in taxes and fees from its residents to creditors, instead of 25 cents,” the presentation said.


AAFAF Executive Director Omar Marrero Díaz provided at a JP Morgan Global High Yield & Leveraged Finance conference an overview of the island’s economic future after the island restructures its debt, including federal funding estimates and retirees.


“Now our focus is on improving government services, prudent financial management, regaining access to the capital markets and economic development,” the presentation states. “Our efforts and resources are concentrated on expanding our tax base through exports, reaching our full potential and increasing economic growth, jumpstarted with investments financed by federal stimulus, and reconstruction funding complemented by creating the conditions for the private sector to prosper.”


After the implementation of the plan of adjustment, debt service will represent 6.5% of the commonwealth’s own revenues, which excludes all federal funding. That percentage currently stands at 28.1% of the island’s collections, according to the presentation.


As for the pending restructuring of the commonwealth’s agencies, the Highways and Transportation Authority’s (HTA) adjustment plan will include $1.25 billion of new HTA debt. The debt should be reduced to $1.2 billion from $6.3 billion.


The restructuring of the Puerto Rico Electric Power Authority (PREPA) remains a priority after the central government restructuring. The debt is expected to be lowered to $5.7 billion from $9 billion.


The targeted date to restructure HTA is mid-2022 while the PREPA restructuring will now take place at the end of 2022. Officials have said they expected a debt adjustment plan to be submitted this month.


“We have shown the political will to reach consensual deals, having restructured over $23 billion of existing indebtedness through the various mechanisms available under PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act], resulting in an approximately 30% reduction in debt across GDB, PRIFA-PORTS, COFINA and PRASA,” the presentation states.


In December 2020 and August 2021, AAFAF and the Puerto Rico Aqueduct and Sewer Authority (PRASA) refinanced $1.4 billion of PRASA’s 2008 Senior and Senior Subordinate Bonds and $1.8 billion in 2012 Senior Bonds, respectively, resulting in a $266 million reduction in total debt outstanding and annual debt service savings of $35 million through final maturity in 2047.

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