Puerto Rico's huge debt could overwhelm attempts to revive its economy. Bond investors, beware.
The Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the “Recovery Act” or “RA”) fills a gap in existing law because, prior to its passage, no law existed to provide an orderly recovery and reorganization regime for the Commonwealth’s public corporations.
The Puerto Rico Federal District Court ruled the Debt Enforcement and Recovery Act (the “Recovery Act”) unconstitutional. The Court has ruled that the entire act is preempted expressly by the federal Bankruptcy Code and is therefore void pursuant to the Supremacy Clause of the United States Constitution. The Court further ruled that the Commonwealth is permanently enjoined from enforcing the Recovery Act.
“It is no secret that the Commonwealth has faced fiscal issues over the last decade. However, the report from Dr. Krueger and her team – commissioned at the request of the Commonwealth – for the first time acknowledges the true extent of the problem. We must make difficult decisions to meet the challenges we now know are ahead, and I intend to do everything in my power to lead us through this time.”
Nydia M. Velázquez (D-NY) wrote aletter to the President regarding Puerto Rico’s debt crisis
Letter from Chairman Hatch, Committee on Finance, to Secretary Jacob Lew, Department of the Treasury seeking additional information regarding the Administration’s views and plans moving forward
Response from Secretary Jacob Lew, Department of the Treasury, to Chairman Hatch
The Puerto Rico Public Finance Corp. was supposed to pay $58 million.
On January 20, 2015, CM was retained as an advisor to the Government Development Bank for Puerto Rico. CM’s scope of services included evaluating the short-term liquidity of the Commonwealth’s General Fund (“GF”) and projecting the anticipated budget deficit and resulting impact on the Commonwealth’s liquidity for FY2015 and FY2016.
A comprehensive set of economic growth and reform measures aimed at achieving long-term fiscal stability and growth for the Commonwealth and its residents. It calls for serious discussions around debt restructuring and urges all stakeholders to act in collaboration with the Commonwealth.
Witness: Ms. Melba Acosta, Government Development Bank of Puerto Rico; The Honorable Pedro R. Pierluisi Congressman For Puerto Rico; Dr. Douglas Holtz-Eakin American Action Forum; Mr. Sergio M. Marxuach Public Policy Director Center for a New Economy
The proposal by the Administration includes four central elements. First, Congress must provide Puerto Rico with an orderly restructuring regime to comprehensively address its financial liabilities by restructuring its debts. Second, Congress should provide independent fiscal oversight to certify that Puerto Rico adheres to the recovery plan it is implementing in a credible and transparent way. Third, Congress needs to reform the Commonwealth’s Medicaid program and ensure that the program provides better access to healthcare services. Fourth, Congress should provide Puerto Rico with access to the Earned Income Tax Credit (EITC), a proven tool that has bipartisan support for rewarding work and supporting growth.
Witness: Mr. Antonio F. Weiss Counselor to the Secretary U.S. Department of the Treasury; The Honorable Pedro Pierluisi Resident Commissioner for Puerto Rico U.S. House of Representatives; The Honorable Alejandro Javier Garcia Padilla Governor Commonwealth of Puerto Rico; Mr. Sergio M. Marxuach Policy Director Center for a New Economy; Mr. Steven Fetter Founder and President Regulation UnFettered
The Executive Order activates “clawback” mechanism in order to fulfill future debt service payments.
Witness: The Honorable Alejandro Javier García Padilla Governor Commonwealth of Puerto Rico; The Honorable Pedro Pierluisi Resident Commissioner For Puerto Rico United States House of Representatives; Mr. Alex J. Pollock Resident Fellow American Enterprise Institute; Mr. Stephen Spencer Managing Director Houlihan Lokey; Dr. Carlos A. Colón De Armas Professor Of Finance Graduate School of Business, University of Puerto Rico; Mr. Richard Carrión Executive Chairman Banco Popular; Mr. Richard Ravitch Former Lieutenant Governor State of New York;
Antonio Weiss, counselor to the secretary of the US Treasury, discussed Puerto Rican debt at the Peterson Institute for International Economics on December 9, 2015. Institute speakers Anna Gelpern, nonresident senior fellow, and Douglas Rediker, visiting fellow, provided their own perspectives on the Treasury's approach and alternative responses to the growing debt crisis there.
"Over the coming months, it would be inconsistent with putting all my efforts to bring Puerto Rico out this crisis and prevent those who created the crisis to return to power," Garcia said.
Speaker Ryan instructed the committees of jurisdiction to work with the Puerto Rican government, review options, and report back by the end of the first quarter
Governor Alejandro Garcia Padilla talked about the state of the territory’s economy at the National Press Club. In his remarks he expressed disappointment that Congress had not taken action to assist Puerto Rico with its more than $70 billion in debt. Governor Padilla said he is not seeking a bailout but the ability to file for bankruptcy.
The statement addresses Congress’ failure to assist Puerto Rico.
A letter from congresswoman Nancy Pelosi to her democratic colleagues
The Government Development Bank for Puerto Rico (“GDB”) today announced that all scheduled principal and interest payments due on January 1, 2016 on the “public debt” of the Commonwealth of Puerto Rico (i.e., debt issued or guaranteed by the Commonwealth) will be made. Such payments amount to, after deductions for capitalized interest and certain federal subsidies, approximately $434 million in the aggregate. The GDB also announced that all payments of principal of and interest on outstanding GDB notes due on January 1, 2016 will be made, amounting to a total aggregate amount of approximately $10 million (including payments guaranteed by the Commonwealth).
The Puerto Rico Infrastructure Finance Authority was supposed to pay $37 million
Assured Guaranty believes the clawback of revenues pledged to bond issues violates the U.S Constitution by illegally interfering with Assured Guaranty’s contractual rights.
Witness: Ms. Lisa Donahue Managing Director, AlixPartners Serving as Chief Restructuring Officer, Puerto Rico Electric Power Authority; Mr. Josen Rossi President, Puerto Rico Institute of Competitiveness and Sustainability Chairman of the Board, AIREKO; Mr. Jorge San Miguel Chair, Environmental Law, Energy & Land Use Ferraiuoli LLC; Mr. Jaime L Sanabria Hernández Co-President & General Manager for Finance & Administration EcoEléctrica, L. P.; Mr. Carlos Rivera Vélez, Ph.D., PE Chairman of the Board Puerto Rico Manufacturers Association
Nevada Senator Harry Reid today called on Republicans to work with Democrats to address the deepening debt crisis facing Puerto Rico. Senator Reid urged Senator McConnell to instruct his caucus to work with Democrats by appointing a task force to develop a responsible, bipartisan solution to this crisis by the end of February.
U.S. Treasury Secretary Jack Lew sends letter to Speaker Ryan urging Congressional Action ahead to his visit to the island next week
The Working Group for the Fiscal and Economic Recovery of Puerto Rico released an update to the Fiscal and Economic Growth Plan (FEGP), a comprehensive set of economic growth and reform measures aimed at achieving long-term fiscal stability and growth for the Commonwealth and its residents that was first released in September 2015. The updated version has been modified to reflect updated projections for fiscal years 2016 to 2020 to account for year-to-date actual results and, in response to creditor requests for additional information, to extend the projection from fiscal year 2020 to fiscal year 2025.
Consistent with the Roadmap for Congressional Action on Puerto Rico that the Administration established in October 2015, the Budget proposes a series of measures to provide Puerto Rico with the tools it needs to address its economic and fiscal crisis in a fair, orderly, and comprehensive manner while creating the foundation for recovery.
While in San Juan, Secretary Lew met with Governor Alejandro García Padilla and Puerto Rico’s economic team; Resident Commissioner Pedro Pierluisi; leadership from the Legislative Assembly of Puerto Rico; labor and community leaders; and Puerto Rico’s business community. In his meetings, Secretary Lew discussed the urgent situation in Puerto Rico and the comprehensive proposal the Administration presented to Congress to help the Commonwealth recover and grow, in addition to the existing federal resources the Administration has already helped direct to Puerto Rico.
The entire Democratic Caucus sent a letter to Sen. McConnell this morning urging the enactment of legislation that gives Puerto Rico access to appropriate restructuring tools. The letter also asks Sen. McConnell to match Speaker Ryan’s commitment to act by the end of the first quarter of this year.
Senator Bill Nelson (FL) sends a letter to the President urging for action on the Puerto Rico situation
Members of the Working Group for the Fiscal and Economic Recovery of Puerto Rico and its restructuring advisors met with the advisors to the Island’s creditors to present the Commonwealth’s restructuring proposal. Over the course of the day, six meetings were held with advisors representing the holders of all of the major tax-supported credits, including local and mainland mutual funds, cooperatives, hedge funds and monoline insurers.
Comprehensive Voluntary Exchange Proposal Would Reduce the Commonwealth’s Mandatorily Payable, Tax-Supported Debt from $49.2 Billion to $26.5 Billion, Cap Annual Debt Payments at 15% of Government Revenues and Provide Creditors the Opportunity to Recover the Principal Amount of Their Investments by Making Them Partners in the Island’s Future Growth
Puerto Rico is in the process of defaulting on various debts. Panelists discussed approaches to confront this growing problem, how to best provide the Commonwealth a path to solvency and stability, and how to address the current legal structures which limit potential solutions. Options may include establishing fiscal oversight, enacting restructuring legislation, increased funding from Congress, or allowing the markets and courts to sort the situation out.
The Working Group for the Fiscal and Economic Recovery of Puerto Rico and its advisors hosted a briefing on the Commonwealth’s debt crisis for Congressional leaders and staff. The briefing, led by Melba Acosta Febo, President of the Government Development Bank for Puerto Rico, Jim Millstein of Millstein & Co., and Richard J. Cooper, Partner at Cleary Gottlieb Steen & Hamilton LLP, comes on the heels of the Working Group’s debt restructuring proposal announced earlier this week. President Acosta, Millstein and Cooper answered questions about the proposal and provided updates on the current state of the Island’s crisis
Financial Services Oversight and Investigations Subcommittee Chairman Sean Duffy will keynote the event. A panel discussion on solutions to the fiscal crisis, moderated by Wall Street Journal reporter Nick Timiraos, will follow.
Letter from Chairman Hatch, Committee on Finance, to Governor Alejandro Garcia Padilla seeking additional information regarding the debt crisis. The letter focuses on the audited financial statements and pension systems.
A panel of experts met to discuss the Puerto Rico debt crisis: how it occurred, what the pressing issues are, and how Congress should react.
The Department of the Treasury of the Commonwealth of Puerto Rico (the “Commonwealth”) issued today a draft of the Commonwealth’s unaudited Basic Financial Statements (the “Draft”) for the fiscal year ending June 30, 2014. The Draft, available at the Department of the Treasury’s website (www.hacienda.pr.gov/inversionistas-investors) is still subject to completion and audit, but includes audited financial information for all public corporations and retirement systems other than the Government Development Bank for Puerto Rico, the Employees Retirement System of the Commonwealth and the Retirement System for the Judiciary of the Commonwealth. Subject to the limitations described in the disclaimer to the Draft, in the opinion of the responsible officers of the Puerto Rico Department of the Treasury, the unaudited financial information included in the Draft is a fair statement of the results for the periods reported.
“We do not believe a broad debt restructuring in Puerto Rico would lead states struggling with budgetary challenges (such as Illinois, New Jersey and Pennsylvania) to clamor to restructure their own debt. Puerto Rico attempting to restructure its obligations won’t encourage other states to do the same. The magnitude of Puerto Rico’s debt and the lack of an economic base to service long-term liabilities makes it a significant outlier in comparison to other states. The “Illinois is next” argument misleadingly suggests that Illinois – admittedly the least creditworthy U.S. state – is comparable to Puerto Rico in terms of financial stress and capacity to meet its obligations.
Letter from Republican Governors Robert Bentley (Alabama), Douglas Ducey (Arizona), Paul LePage (Maine), Pete Ricketts (Nebraska), Susana Martinez (New Mexico), Dennis Daugaard (South Dakota) against broad restructuring for Puerto Rico
Congresswoman Velázquez, Congressman Gutiérrez and Governor Acevedo-Vilá
Witnesses: Dr. Anne Krueger, Senior Research Professor of International Economics, John Hopkins University School of Advanced International Studies; Mr. Juan Carlos Batlle, Senior Managing Director, CPG Island Servicing, LLC; Mr. William M. Isaac, Senior Managing Director, Global Head of Financial Institutions, FTI Consulting
Witnesses: Mr. Antonio Weiss, Counselor to the Secretary, U.S. Department of the Treasury
The conference explored the concept of a Fiscal Responsibility Law (FRL) for Puerto Rico as a policy proposal that could lay the groundwork for the stabilization of Puerto Rico’s public finances and prompt a broad overhaul of Puerto Rico’s fiscal infrastructure. FRLs are mechanisms that allow for the establishment of monitorable fiscal targets and policy reforms. The panel discussed the benefits of enacting and implementing a FRL as the basis for a strong fiscal regime for Puerto Rico, and how it might fit within the broad framework of any federal policy that addresses the island’s current fiscal and economic crisis.
Governor Garcia Padilla met with the chair of the House Natural Resources Committee, congressman Rob Bishop (R-UT) at La Fortaleza (San Juan, Puerto Rico). The Governor spoke about the ongoing economic challenges that the Commonwealth is facing and urged the congressman to work with Congress so that the government gets the tools to face this economic and fiscal challenge. The Governor has been urging Congress to pass legislation to provide broad restructuring, federal oversight, and economic development tools to get Puerto Rico back on track.
Issue: Whether Chapter 9 of the federal Bankruptcy Code, which does not apply to Puerto Rico, nonetheless preempts a Puerto Rico statute creating a mechanism for the Commonwealth’s public utilities to restructure their debts.
Statement from GDB president, Melba Acosta, on the GDB’s liquidity position.
A group of investors sued the Government Development Bank for Puerto Rico Monday to protect their interests after the governor said the bank can't make its $423 million debt payment due May 1.
We'd love to hear from you. Please send questions or feedback to the below email addresses.
Before contacting us, you may wish to visit our FAQs page which has lots of useful info on Tiki-Toki.
We can be contacted by email at: hello@tiki-toki.com.
You can also follow us on twitter at twitter.com/tiki_toki.
If you are having any problems with Tiki-Toki, please contact us as at: help@tiki-toki.com
Close