What Additional Steps Or Safeguards Are Needed To Improve Puerto Ricos Fiscal Position
Puerto Rican bonds are not currently rated by any of the major credit rating agencies, making it difficult for the Commonwealth to borrow on public markets. For the bonds to gain wider traction on markets, Ceffalio said, Puerto Rico needs audited financial statements: I dont know if thats enough to get the rating, but I think that would be a big step. Jaresko and Skeel underscored this point, arguing that audited financial statements are needed to show definitively that the governments budget is balanced.
While enabling future borrowing is important, Marxuach cautioned against enabling the excessive debt that led to the crisis:
he language in the constitution says that whenever expenses exceed available resources then Puerto Rico must increase taxes. The thing is that the phrase available resources has been interpreted by different lawyers and even by the Puerto Rico Secretary of Justice, Attorney General, to include the issuance of debt. So, thats how we got into this mess the first place because the concept of available resources is much broader than available revenues. And they include the issuance of new debt for deficit financing in order to bridge the gap. So, thats one of the things that we definitely need to fix in the constitution.
What About The Puerto Rico Electric Power Authority
PREPA, Puerto Ricos primary electricity supplier, has long been a source of frustration for Puerto Ricans. Its troubles predate the islands financial crisis. Electricity was unreliable and expensive, and Hurricane Maria further damaged the utilitys aging infrastructure. Its finances remain unresolved. Skeel said that the government of Puerto Rico and the oversight board have been working towards increasing system reliability by bringing in private operators. PREPA is also in negotiations for debt restructuring. Jaresko noted that critical FEMA funding has been slow to arrive and that many of its benefits are yet to be realized. In addition, legacy generation assets are being gradually decommissioned with a cleaner, cheaper, and more reliable generation on the side of renewables phasing in, she said.
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What Lessons Does Puerto Rico Offer Other Governments And The Municipal Bond Market
One of the lessons from the Puerto Rico restructuring is the novel use of a Contingent Value Instrument that links bondholder payouts to sales tax revenues. Bondholders, in essence, will do better if Puerto Ricos economy does better. Sales tax revenues, as revenues go, are pretty precisely determined. Its pretty hard to play games with them, Ceffalio said. They track the economy really well. He and Skeel agreed that this instrument could be used in future municipal bankruptcies.
The panel also discussed whether Puerto Rico had established a precedent of pensioners taking smaller haircuts than bondholders in municipal bankruptcies. Jaresko argued that the Puerto Rican pension system was structured differently than pension systems in other prominent municipal bankruptcies, such as Detroit. Also, Puerto Rico pensions had been cut before PROMESA. As such, she thought Puerto Ricos situation was somewhat unique. Ceffalio, however, said that there is a precedent that was set in Detroit and in some of the California bankruptcies that in negotiations the pensioners I think have a better moral claim and better political claim than does a mutual fund, who might be hesitant to get into a public fight with pensioners. So, I do think thats largely a precedent and itll continue to go that way.
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Puerto Rico Creditors Open To Mediation In Bankruptcy Court
By Nick Brown
6 Min Read
SAN JUAN – Puerto Ricos main creditors, meeting before a U.S. bankruptcy judge in the largest public finance restructuring case in history, are interested in continuing mediation settlement talks to resolve the islands unpayable $70 billion debt bill.
In the first hearing since the U.S. commonwealth filed for bankruptcy on May 3, a lawyer for Puerto Ricos federal financial oversight board told U.S. District Court Judge Laura Taylor Swain that the two main creditor groups expressed interest in maintaining the discussions while the case proceeds.
Swain, the soft-spoken Manhattan jurist tapped by the U.S. Supreme Court to handle the bankruptcy, said the scope and scale of the case is humbling and that it will certainly involve pain but that failure is not an option.
She added, before a packed courtroom with an estimated 100 people and two additional overflow rooms, that devoting all our time to litigation cannot be a way forward.
Wednesdays hearing marked the start of a process that could take months or years. It is also a culmination of more than two years of bitter debate between Puerto Ricos government, its creditors and federal lawmakers over how the island should rework its debt load that has crippled its economy.
The islands sales tax authority, known as COFINA, followed suit days later with its own filing under Title III of the PROMESA law, which provides for the bankruptcy mechanism.
The Puerto Rico Bankruptcy: A Cheat Sheet
The Puerto Rico Bankruptcy: a Cheat Sheet
Shaw Fishman Glantz & Towbin LLC
On May 3, 2017, the Financial Oversight and Management Board of Puerto Rico launched an unprecedented restructuring proceeding under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act . This article provides a very high level summary1 of some of the unique provisions in PROMESA, the bankruptcy analogue crafted specially by Congress for the debt crisis in Puerto Rico, and highlights some of the main players and key developments thus far2.
What Happened?
The Commonwealth of Puerto Rico incurred a substantial amount of debt during the end of the last century. According to a statement filed by the Oversight Board in its first-day papers, the Commonwealth and its affiliates owe approximately $74 billion, including approximately $13.3 billion in general obligation bonds3. Those figures do not include an additional $49 billion in pension liabilities, of which it is estimated only 1.5% is funded4. The Oversight Board predicts that the retirement systems will have no liquid assets by the end of 20175.
What is PROMESA?
What Is the PROMESA Oversight Board?
Questions raised about the extent of consensual negotiations by the Oversight Board are addressed in the ABI article Developing: Puerto Rico Enters Bankruptcy.
What Is a Title III Proceeding?
3 Statement ¶ 11.
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Judge Approves Deal To Resolve Puerto Rico Bankruptcy
The plan restructures $33 billion in debt nearly five years after Puerto Rico became the first U.S. state or territory to essentially declare bankruptcy.
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By Patricia Mazzei, Frances Robles and Coral Murphy Marcos
MIAMI Puerto Rico received approval from a federal judge on Tuesday to leave bankruptcy under the largest public-sector debt restructuring deal in the history of the United States, nearly five years after the financially strapped territory .
Since Puerto Rico entered bankruptcy, its economic crisis has only been further deepened by Hurricanes Irma and Maria, a series of earthquakes and the coronavirus pandemic.
The restructuring plan will reduce the largest portion of the Puerto Rico governments debt some $33 billion by about 80 percent, to $7.4 billion. The deal will also save the government more than $50 billion in debt payments.
And, though at a discount, Puerto Rico will start repaying creditors, something it has not done in years. The government said in 2015 that it could no longer pay its loans.
Today is truly a momentous day, and it is a new day for Puerto Rico, Natalie A. Jaresko, the executive director of the oversight board that has overseen Puerto Ricos finances since 2016, said a virtual news conference on Tuesday afternoon. This period of financial crisis is coming to an end.
Us Bankruptcy Court For The District Of Puerto Rico Dismisses Adversary Proceeding
Posted by pmalaw, inAnnouncements
Litigation Partner Jorge I. Peirats and Associate Giselle López Soler recently obtained a judgment from the United States Bankruptcy Court for the District of Puerto Rico dismissing with prejudice an adversary proceeding filed by debtor Life Flight of Puerto Rico, Inc. against Humana Health Plan of Puerto Rico, Inc. The Hon. Brian K. Tester, Bankruptcy Judge, agreed with defendant in that qualitative distinctions between air ambulance providers do not require payment of different rates under applicable law and regulations. Life Flight of Puerto Rico, Inc. v. Humana Health Plan of Puerto Rico, Inc., Case No. 08-08870 , Adversary No.09-00057.
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When Will The Oversight Board Be Disbanded
According to PROMESA, the oversight board will be terminated once Puerto Rico has access to credit at reasonable rates and has achieved four consecutive years of balanced budgets. John Ceffalio noted that the wording of this section is vague: When you read it, its adequate access to short-term and long-term credit markets at reasonable interest rates. What does adequate mean? What are reasonable interest rates?
Jaresko and Skeel agreed with Ceffalios assessment but noted that the law is purposefully written to allow the oversight board flexibility in determining the criteria for its own termination. Both Skeel and Jaresko believe the 2022 fiscal year could turn out to be the first year for which audited statements show Puerto Rico has balanced its budget.
Was Promesa Successful In Achieving Its Goals
Yes, the panelists agreed. It did take a long time, but it really did work overall in my view, said David Skeel. Our objective when we started was once and done. Puerto Rico cant do this multiple times. And that meant we were very, very careful about how much debt there would be going forward. Under the plan crafted by the Financial Oversight and Management Board, the maximum amount Puerto Rico can borrow in any year is $1.15 billion, a sum equaling about 8 percent of the Commonwealths own revenues excluding federal aid. He described the plan as clearly sustainable for Puerto Rico going forward and clearly fair to the creditors, particularly the general obligation bondholders.
Sergio Marxuach cautioned, however, that while the debt limits were a temporary success, they will eventually expire, and the Commonwealths budgeting process still needs reform. I do think theres a need to legislate new Puerto Rico safeguards in terms of fiscal rules, limits on deficit spending, and debt issuance. We already have some of those in our constitution, and they obviously did not work or at least they were relatively easy to work around, he said. Natalie Jaresko emphasized that the debt restructuring was a necessary but not sufficient condition for Puerto Ricos economic success. Now you need political will on the part of the elected leadership to do what elected leaders need to do, she said.
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Puerto Rico Bankruptcy Judge Approves Plan Of Adjustment
U.S. District Court Judge Laura Taylor Swain approved the Plan of Adjustment for Puerto Ricos central government bonds and obligations Tuesday afternoon, setting the stage for the commonwealth to exit bankruptcy after more than four years of intense negotiations over its massive debts.action takes place
The action sets the restructuring terms for about $33 billion of debts the largest bankruptcy in the municipal market’s history including the commonwealth governments general obligation bonds and its Public Building Authority, Employees Retirement System, and Convention Center District Authority bonds.
It also affects, but doesnt fully set, the terms for the Highways and Transportation Authority and the Puerto Rico Infrastructure and Finance Authority rum tax bonds. With the judges approval of the plan, the Oversight Board still must gain approval of plans of adjustment for those agencies.
Board Executive Director Natalie Jaresko said she hopes for an effective date of the Plan of Adjustment on or before March 15. Appeals are likely.
This was an astonishingly complex and large and important bankruptcy, said Board chairman David Skeel during a press briefing on Tuesday. We started out with what seemed like unbridgeable differences of views and projections about what the future was going to look like. We were able to bridge those differences in opinion through some remarkable innovations in this Plan of Adjustment.”
Puerto Ricos Bankruptcy: Where Do Things Stand Today
In 2016, Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act , which created the Puerto Rico Financial Oversight and Management Board to restructure the Commonwealths unsustainable burden of more than $72 billion in debt and more than $55 billion in unfunded pension liabilities. The board oversaw a bankruptcy process that culminated in March 2022, when a federal court confirmed a plan that reduced Puerto Ricos debt by 80%. Still, the work of putting the Commonwealth on a sustainable fiscal path remains incomplete. At our annual Municipal Finance Conference in July 2022, four experts weighed in on the effects of PROMESA and the challenges that remain: Natalie Jaresko, former executive director of the oversight board Sergio Marxuach, policy director at the Center for a New Economy David Skeel, chairman of the oversight board and professor of corporate law at the University of Pennsylvania Carey Law School and John Ceffalio, senior research analyst for Municipals at CreditSights. The panel was moderated by Michelle Kaske of Bloomberg.
You can watch a video of the panel here. Here are a few highlights.
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