Population decline, a contracting economy, natural disasters, and changes in tax status and available credits under the US tax code created a poor outlook for the Commonwealth of Puerto Rico.
In response to the ongoing fiscal and humanitarian crisis in Puerto Rico, in 2016 President Obama signed into law the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). PROMESA promised a path forward to restructuring the Commonwealth’s debt and implementing fiscal reform to cultivate a sustainable economy, fiscal responsibility, and market access.
Nixon Peabody served as bond counsel on the restructuring of more than $34 billion of outstanding debt, which was exchanged for $7.4 billion in new general obligations bonds and $8.7 billion in new general obligation contingent value instrument notes.
As a result of its reduced total debt obligations, the Commonwealth now looks forward to a future of opportunity and growth.
Driving the largest municipal restructuring in US history
The Nixon Peabody bond counsel team worked diligently to address the numerous challenges during this transaction.
The underlying financing documents required negotiation and approval by not only the Financial Oversight Board, but also representatives of four municipal bond insurers and numerous institutional investors. And the restructuring involved the issuance of general obligation bonds, contingent value instruments, and the establishment of more than 50 custodial trusts, resulting in more than 400 deliverables at issuance. We advised on the new authorizing legislation as well as a new debt policy governing the issuance of debt by the Commonwealth going forward.
These challenges required teamwork and cooperation with Commonwealth entities including their advisors and counsel, municipal bond insurers, and institutional creditors.
Teamwork Makes the Dream Work
Our team’s unwavering pursuit of excellence, collaboration, and consistency literally paid off—Puerto Rico’s government has formally exited bankruptcy.
“This is the most complex and comprehensive public debt restructuring in the history of the United States… [I]t allows Puerto Rico to return to the capital markets, eliminates uncertainty, and restores investor confidence in Puerto Rico, which will in turn promote investment, economic development, and job creation.” Omar Marrero, Puerto Rico Secretary of State/Lt. Governor
Creating Positive Impact
Relying on our deep relationships, industry knowledge, and experience, our bond counsel team was able to carry out the largest municipal restructuring in US history.
This deal closing means that Puerto Rico’s government has formally exited bankruptcy and will resume payments to bondholders for the first time since 2016. And on top of this, there would be an immediate $7.78 billion cash payment to holders of some of the bonds.
With NP by its side, Puerto Rico now has a path to access the credit markets and develop balanced annual budgets, and the impact of our work will be felt for years to come.