By Nick Brown and Megan Davies
SAN JUAN/NEW YORK (Reuters) - Puerto Rico's creditors are not waiting for the island to make the first move in the next round of debt restructuring talks, discussing among themselves possible alternatives to a broad exchange offer being pushed by the U.S. commonwealth, several sources said this week.
Facing $70 billion in debt and a 45 percent poverty rate, Puerto Rico is trying to solve an economic crisis before it hits substantial debt payments in May and July.
Debt restructuring talks with creditors, which have slowed in recent weeks, are expected to pick back up this month, and Puerto Rican leaders have said they will propose a so-called "superbond," a universal exchange offer available to many sets of stakeholders.
But creditors holding some of the $13 billion in general obligation debt backed by Puerto Rico's constitution, as well some of the $15 billion of debt at its sales tax authority COFINA, have held preliminary restructuring talks without Puerto Rico advisers present, according to three sources close to the talks. Some holders of Government Development Bank debt were involved as well, two of the sources said.
The talks are preliminary, sources said, and do not mean stakeholders are unwilling to listen to proposals from Puerto Rico, but they may indicate mounting resistance to a superbond. They also reflect skepticism that Puerto Rico's superbond pitch will come to fruition any time soon, two of the people said.
Restructuring talks have moved slowly on the island, and there were no publicized meetings in the final weeks of 2015, when Governor Alejandro Garcia Padilla focused mainly on lobbying unsuccessfully for U.S. Congress to pass legislative action on Puerto Rico, and on finding a way to avoid default on most of $1 billion of debt payments due on Jan. 1.
Reorg Research, a restructuring industry publication, reported in November that general obligation and COFINA creditors were hoping to unveil their own plans to restructure Puerto Rico's debt, but with major debt payments due in May, pressure is now mounting for formal plans to be proposed.
Sources indicated that local officials are attempting to schedule a meeting with creditors but the date is in flux and some sources doubt the talks will take place any time soon.
The talks by general obligation and COFINA creditors could include a proposal that Congress grant Puerto Rico access to some form of bankruptcy, though it is too early to know for sure, said two of the sources.
Under current federal law, the Caribbean island can neither declare bankruptcy itself nor put its municipal agencies into bankruptcy, to the chagrin of Governor Padilla, who says Puerto Rico needs a restructuring framework to enforce repayment cuts on hedge funds who bought its debt at steep discounts.
Two of the sources said a creditor proposal would not likely include a superbond, with one adding that it would aim to allow more flexibility for different creditor sets to be treated differently.