Democrats In Action
2018-09-13 06:18:22 UTC
The $16 billion aid package that Congress approved for Puerto
Rico as part of the budget deal this month came as a relief to
the territorys government. It also came as a relief to its
bondholders.
The price of Puerto Rican commonwealth bonds have soared since
Congress passed the rescue package. Though the bankrupt
territory has halted interest payments on its bonds, investors
including hedge funds drove up the price of the general
obligation bond due 2035 by 11 percent on Wednesday. The average
price of the bond Frida was 32.01 cents on the dollar, up 26
percent for the week.
The source of investors hopes is a new Puerto Rican fiscal plan
issued Feb. 12 that sharply raised forecasts for cash flow and
long-range sustainable debt that the territory made before
Congress acted. By fiscal year 2023, the government would
accumulate a $2.8 billion surplus, the plan says.
The stronger forecasts raised fears among some U.S. lawmakers
that the new federal funds earmarked for Medicaid, housing
reconstruction and money to repair other damage from Hurricane
Maria would indirectly flow to Puerto Ricos bondholders.
We need to be unambiguously clear that the money Congress
approved was for rebuilding Puerto Rico and to aid its citizens,
not to line the pockets of Wall Street investors that bought the
Islands debt on the cheap, Rep. Nydia M. Velázquez (D-N.Y.)
said in a statement Friday. It would be a moral outrage if
money intended for Puerto Ricos vulnerable was siphoned off to
creditors and vulture funds.
Velázquez and six other lawmakers wrote to the board created by
the Puerto Rico Oversight, Management and Economic Stability Act
to make sure the funding from Congress is going to the right
places.
At the same time, bondholders were not satisfied with the new
fiscal plan. It is built on sparse data and outright
mischaracterizations, said a group of creditors that includes
the bond insurers Ambac and MBIA and other major institutions
and individuals in Puerto Rico and on the mainland.
The oversight board must by law review the fiscal plan drawn up
by the commonwealth government. Natalie Jaresko, the boards
executive director, would not comment on the prospects for a
recovery for bondholders, except to say that the capacity to
pay can only exist with a growing economy.
Jaresko said that the support from Congress would be short-
lived. Its a couple of years. If you dont use that cushion to
make structural reforms, you would return to the economic
decline trend pre-hurricane.
She said the island must use the time and growth over the next
couple of years .?.?. to make the changes required for Puerto
Rico to come out of that much stronger, much more competitive.
Some analysts said the changes in the fiscal plan did not mean
that bondholders could expect a better deal. Any surplus could
be used for further stimulus either through spending or tax cuts.
Certainly, federal funds earmarked for recovery and
reconstruction should not under any circumstances be utilized
for debt service, said Sergio Marxuach, public policy director
for the Center for a New Economy, an independent Puerto Rican
think tank. In theory that surplus could be used to pay some
debt service to bondholders, but, he said, it would be a big
mistake to use that to service the debt. The number one priority
should be to grow the economy, and any such surpluses should be
directed to public investment.
In the new fiscal plan, the Puerto Rican government raised
forecasts it made less than three weeks earlier. Now it says
that it expects to have positive cash flow in as little as two
years and topping $1 billion a year starting 2020 creating a
target for bondholders eager to convince the bankruptcy court
that the island can soon resume interest payments. Earlier the
commonwealth said it would not be able to restart interest
payments for at least five years.
The new plan also says that the battered island can sustain
anywhere from $3.9 billion to $27 billion in debt, a figure that
suggests that owners of Puerto Rican government debt could
escape with as little as a 45 percent haircut in the value of
its bonds.
That is a much higher range than the Puerto Rican government
estimated just 20 days earlier. Its Jan. 24 fiscal plan forecast
sustainable debt ranging from roughly $2.5 billion to less than
$15 billion which would mean a much tougher deal for
bondholders.
Marxuach said that the analysis done by his center concludes
that Puerto Rico should not pay any debt during the next five
years and that the bankruptcy court should agree to wipe out 70
percent to 80 percent of outstanding debts.
The islands creditors do not agree.
Although every strained municipality would love to avoid paying
its debts, Puerto Ricos government cannot expect creditors to
accept and trust a document built on fiscal metrics that are
analytically flawed and completely inconsistent with historical
precedent, said a statement from the group of creditors that
includes Ambac and MBIA. The group said that the fiscal plan was
completely lacking a foundation for revitalizing the local
economy and restoring access to the capital markets.
The fiscal plan only applies to the commonwealth and does not
include the bankrupt Puerto Rico Electric Power Authority
(PREPA), which on Thursday told a bankruptcy judge in New York
that it was running out of money. District Court Judge Laura
Taylor Swain rejected PREPAs plea for a loan from the islands
government.
On Friday, PREPA said it would activate an operational
emergency plan that would slow recovery from the power losses
caused by the hurricane. About 20 percent of Puerto Ricans are
still without electricity.
Controversy is also simmering over who has ultimate authority
over PREPA. The oversight board, concerned about corruption and
bloated payrolls, wants to play a bigger role. So does an
independent Puerto Rico Energy Commission created in 2014. But
Puerto Rican Gov. Ricardo Rosselló wants to control the utility
himself.
Last week Rosselló riled some of his congressional allies in
Washington by drawing up plans to change the three-person energy
commission into a one-person commission whose sole member could
be dismissed by the governor without cause.
Members of Congress see the energy commission as akin to public
service bodies on the mainland. Those have wide authority to
protect consumers. Moreover, the recent financial aid package
Congress passed calls on the Puerto Rico Energy Commission to
oversee and audit the spending of federal funds.
Although Rossello has been at odds with the financial oversight
board, the two are widely believed to be in agreement on
downgrading the role of the energy commission.
A recent policy statement from the commission complained that
the utility in recent months has been resisting the
commissions authority revealing a wish to return to the days
of unregulated, politically influenced monopoly behavior that so
ill-served the Commonwealth.
Rossello did not pursue that measure last week.
https://www.washingtonpost.com/business/economy/in-puerto-rico-a-
skirmish-over-how-much-debt-the-bankrupt-island-can-
handle/2018/02/16/3870e8b6-127a-11e8-9570-
29c9830535e5_story.html?noredirect=on&utm_term=.9c111dd744e1
Rico as part of the budget deal this month came as a relief to
the territorys government. It also came as a relief to its
bondholders.
The price of Puerto Rican commonwealth bonds have soared since
Congress passed the rescue package. Though the bankrupt
territory has halted interest payments on its bonds, investors
including hedge funds drove up the price of the general
obligation bond due 2035 by 11 percent on Wednesday. The average
price of the bond Frida was 32.01 cents on the dollar, up 26
percent for the week.
The source of investors hopes is a new Puerto Rican fiscal plan
issued Feb. 12 that sharply raised forecasts for cash flow and
long-range sustainable debt that the territory made before
Congress acted. By fiscal year 2023, the government would
accumulate a $2.8 billion surplus, the plan says.
The stronger forecasts raised fears among some U.S. lawmakers
that the new federal funds earmarked for Medicaid, housing
reconstruction and money to repair other damage from Hurricane
Maria would indirectly flow to Puerto Ricos bondholders.
We need to be unambiguously clear that the money Congress
approved was for rebuilding Puerto Rico and to aid its citizens,
not to line the pockets of Wall Street investors that bought the
Islands debt on the cheap, Rep. Nydia M. Velázquez (D-N.Y.)
said in a statement Friday. It would be a moral outrage if
money intended for Puerto Ricos vulnerable was siphoned off to
creditors and vulture funds.
Velázquez and six other lawmakers wrote to the board created by
the Puerto Rico Oversight, Management and Economic Stability Act
to make sure the funding from Congress is going to the right
places.
At the same time, bondholders were not satisfied with the new
fiscal plan. It is built on sparse data and outright
mischaracterizations, said a group of creditors that includes
the bond insurers Ambac and MBIA and other major institutions
and individuals in Puerto Rico and on the mainland.
The oversight board must by law review the fiscal plan drawn up
by the commonwealth government. Natalie Jaresko, the boards
executive director, would not comment on the prospects for a
recovery for bondholders, except to say that the capacity to
pay can only exist with a growing economy.
Jaresko said that the support from Congress would be short-
lived. Its a couple of years. If you dont use that cushion to
make structural reforms, you would return to the economic
decline trend pre-hurricane.
She said the island must use the time and growth over the next
couple of years .?.?. to make the changes required for Puerto
Rico to come out of that much stronger, much more competitive.
Some analysts said the changes in the fiscal plan did not mean
that bondholders could expect a better deal. Any surplus could
be used for further stimulus either through spending or tax cuts.
Certainly, federal funds earmarked for recovery and
reconstruction should not under any circumstances be utilized
for debt service, said Sergio Marxuach, public policy director
for the Center for a New Economy, an independent Puerto Rican
think tank. In theory that surplus could be used to pay some
debt service to bondholders, but, he said, it would be a big
mistake to use that to service the debt. The number one priority
should be to grow the economy, and any such surpluses should be
directed to public investment.
In the new fiscal plan, the Puerto Rican government raised
forecasts it made less than three weeks earlier. Now it says
that it expects to have positive cash flow in as little as two
years and topping $1 billion a year starting 2020 creating a
target for bondholders eager to convince the bankruptcy court
that the island can soon resume interest payments. Earlier the
commonwealth said it would not be able to restart interest
payments for at least five years.
The new plan also says that the battered island can sustain
anywhere from $3.9 billion to $27 billion in debt, a figure that
suggests that owners of Puerto Rican government debt could
escape with as little as a 45 percent haircut in the value of
its bonds.
That is a much higher range than the Puerto Rican government
estimated just 20 days earlier. Its Jan. 24 fiscal plan forecast
sustainable debt ranging from roughly $2.5 billion to less than
$15 billion which would mean a much tougher deal for
bondholders.
Marxuach said that the analysis done by his center concludes
that Puerto Rico should not pay any debt during the next five
years and that the bankruptcy court should agree to wipe out 70
percent to 80 percent of outstanding debts.
The islands creditors do not agree.
Although every strained municipality would love to avoid paying
its debts, Puerto Ricos government cannot expect creditors to
accept and trust a document built on fiscal metrics that are
analytically flawed and completely inconsistent with historical
precedent, said a statement from the group of creditors that
includes Ambac and MBIA. The group said that the fiscal plan was
completely lacking a foundation for revitalizing the local
economy and restoring access to the capital markets.
The fiscal plan only applies to the commonwealth and does not
include the bankrupt Puerto Rico Electric Power Authority
(PREPA), which on Thursday told a bankruptcy judge in New York
that it was running out of money. District Court Judge Laura
Taylor Swain rejected PREPAs plea for a loan from the islands
government.
On Friday, PREPA said it would activate an operational
emergency plan that would slow recovery from the power losses
caused by the hurricane. About 20 percent of Puerto Ricans are
still without electricity.
Controversy is also simmering over who has ultimate authority
over PREPA. The oversight board, concerned about corruption and
bloated payrolls, wants to play a bigger role. So does an
independent Puerto Rico Energy Commission created in 2014. But
Puerto Rican Gov. Ricardo Rosselló wants to control the utility
himself.
Last week Rosselló riled some of his congressional allies in
Washington by drawing up plans to change the three-person energy
commission into a one-person commission whose sole member could
be dismissed by the governor without cause.
Members of Congress see the energy commission as akin to public
service bodies on the mainland. Those have wide authority to
protect consumers. Moreover, the recent financial aid package
Congress passed calls on the Puerto Rico Energy Commission to
oversee and audit the spending of federal funds.
Although Rossello has been at odds with the financial oversight
board, the two are widely believed to be in agreement on
downgrading the role of the energy commission.
A recent policy statement from the commission complained that
the utility in recent months has been resisting the
commissions authority revealing a wish to return to the days
of unregulated, politically influenced monopoly behavior that so
ill-served the Commonwealth.
Rossello did not pursue that measure last week.
https://www.washingtonpost.com/business/economy/in-puerto-rico-a-
skirmish-over-how-much-debt-the-bankrupt-island-can-
handle/2018/02/16/3870e8b6-127a-11e8-9570-
29c9830535e5_story.html?noredirect=on&utm_term=.9c111dd744e1