Puerto Rico has a new plan to get out of its massive debt crisis: Use a big eras

er.
The island's taxpayers are currently on the hook to pay back about $50 billion.
On Monday, Puerto proposed cutting that nearly in half to $26.5 billion.
So far, Puerto Rico's creditors are not impressed.
"It's frustrating, and it doesn't feel like a credible offer," a person close to
major creditors told CNNMoney.
The crisis is likely to end up in a lengthy court battle unless Washington polit
icians step in. Congress is holding another hearing on Puerto Rico this week. Re
publican House Speaker Paul Ryan promised to do something to aid the island by t
he end of March.
Puerto Rico's governor has repeatedly said the island can't pay back all of the
money it owes to creditors. Governor Alejandro Garca Padilla says the island is i
n a "death spiral" that is turning into a humanitarian crisis.
The island is now struggling to pay teachers and is delaying payments to compani
es such as the vendor that supplies food to its prisons.
Puerto Rico is so short of funds that it already defaulted twice, once in August
and once in early January.
Related: Puerto Rico defaults for a 2nd time
"I don't think this plan is going to get very far," says David Tawil, president
of Maglan Capital. His firm used to own Puerto Rican debt, but sold its last hol
dings in 2014. "I don't see anywhere in the capital structure to make money now.
"
Many Puerto Ricans are worried about the island's sagging economy. They are migr
ating to the mainland United States in large waves not seen since the 1950s "Wes
t Side Story" era.
On the creditor side, while some of the debt is owned by hedge funds, a lot is h
eld by regular people who either bought the bonds or invested in funds such as t
he Franklin Double Tax-Free Income Fund (FPRIX) that own a lot of the Puerto Ric
an debt.
"We encourage the commonwealth to try again and to remember that a majority of t
he debt is held by individual investors, many of whom are seniors and retirees,"
says Matthew Kandrach, a representative of Main Street Bondholders, a coalition
of Puerto Rican bondholders.
Related: Puerto Rico has a brain drain problem
Puerto Rico's government argues the only way to keep paying school teachers and
police and get the economy growing again is the trim the debt. At the moment, ab
out 36% of the government's revenues go to debt payments. The island says it can
't afford to pay more than 15%.
To put that into context, about 7% of the national U.S. budget currently goes to
debt payments.
The proposal is for creditors to voluntarily exchange their current bonds for ne
w bonds.
"A crisis of this magnitude must be addressed in concert, otherwise we risk our
ability and the opportunity to escape the spiral of a stagnating economy, endles
s deficits and increasing debt," said Victor Suarez, Puerto Rico's secretary of
state.
Puerto Rico currently owes creditors $49.2 billion in debt backed by taxpayers.
Under the island's plan, creditors would receive $26.4 billion of new bonds guar
anteeing payment. Then they would get $22.7 billion of "growth bonds" that would
only be paid if Puerto Rico has sufficient revenues to do so.