The Senate Finance Committee will be holding a hearing tomorrow at 10 a.m. ET titled “Financial and Economic Challenges in Puerto Rico.” Witnesses set to testify at the hearing include:
Hon. Pedro R. Pierluisi, Congressman for Puerto Rico, U.S. House of Representatives
Melba Acosta, President, Government Development Bank for Puerto Rico
Douglas Holtz-Eakin, President, American Action Forum
Sergio M. Marxuach, Public Policy Director, Center for a New Economy
For more information on the hearing, please click here.
When the federal government set out to regulate mutual funds, investment firms in Puerto Rico were deemed too far off the beaten track to merit scrutiny so the mutual funds were excluded from regulation under the Investment Company Act of 1940, The New York Times reported today. Now, Puerto Rico’s economy is teetering, investors in its bonds have suffered big losses and at least one member of Congress says the 75-year-old exclusion has outlasted its shelf life. Nydia Velázquez (D-N.Y.) is expected to introduce an amendment to the act that would give mutual fund investors in Puerto Rico the same regulatory protection that their counterparts have on the U.S. mainland. The bill, if it becomes law, will not replace the money the investors have lost, but it will bar some of the activities that led to their losses — activities that are already illegal on the mainland.
Puerto Rico's power authority PREPA has reached a deal with its lenders to restructure $700 million in matured debt, a significant step in turning around the utility after it clinched a deal with bondholders earlier in September, Reuters reported yesterday. Finding a solution for PREPA has been seen as a critical test for the U.S. territory, weighed down by a $72 billion debt, as it tries to reach agreement on a broader restructuring of its borrowings. PREPA said that the deal was reached with its fuel-line lenders — a syndicate of Puerto Rican banks and asset manager Solus. They are being given the option to either convert existing credit to term loans with a fixed interest rate of 5.75 percent over 6 years, or to exchange their principal for new securitization bonds.
Mayor Rahm Emanuel is proposing a historic property tax increase, while expanding fees on trash collection and taxi rides under a plan to confront a growing fiscal crisis in the nation’s third largest city, the Wall Street Journal reported today. The proposal comes months into the second term of Emanuel, a former congressman and chief of staff to President Barack Obama, as he runs out of options to address ballooning pension costs that are coming due. During his first term, the mayor focused on trying to gain concessions from city workers and retirees, but was stymied by the courts and organized labor. Emanuel’s plan would raise an additional $544 million from property taxes alone phased in over four years under what is being described as the largest tax rise in city history. He also proposes raising additional revenue by taxing e-cigarettes, expanding fees on garbage pickup, and adding fees on taxi and ride-sharing services.
Puerto Rico’s main electricity provider, PREPA, failed to extend a contract with its bond insurers that has given the power company time to negotiate a way to restructure its $8.3 billion of debt, Bloomberg News reported on Saturday. PREPA’s failure to extend the forbearance agreement with the insurers marks a setback for the utility, which earlier this month struck a tentative deal with some of its bondholders to reduce its debt load. Insurers that guarantee $2.5 billion of the utility’s debt balked at extending the talks. The forbearance keeps negotiations outside of court. Bondholders agreed to extend the forbearance contract to Oct. 1, while fuel-line lenders pushed the expiration deadline to Sept. 25.
The U.S. Internal Revenue Service is auditing $200 million of bonds that built an unfinished jail in Wayne County, Mich., seeking to determine whether to revoke federal subsidies given to the cash-strapped government, Bloomberg News reported yesterday. Wayne County, which includes Detroit, sold the federally taxable debt in December 2010 to build a new jail, only to shut down the project in the middle of construction about three years later because of cost overruns. The U.S. Treasury pays 45 percent of the interest under a program aimed at spurring development in economically distressed areas. The IRS told the county it is scrutinizing the bonds "because of information we received from external sources or developed internally that causes a concern that the debt issuance may fail one or more provisions” of the tax code, according to a Sept. 9 filing with the Municipal Securities Rulemaking Board.
The U.S. Treasury Department said yesterday that Congress should provide Puerto Rico with access to a restructuring regime to help the commonwealth deal with its fiscal challenges, Reuters reported yesterday. "Without federal legislation, a resolution across Puerto Rico's financial liabilities would likely be difficult, protracted and costly," the Treasury Department said in a statement. With Puerto Rico projected to exhaust its liquidity later this year, Congress "must act now" to provide the island with access to restructuring, the statement said.
A week after the governor of Puerto Rico laid out a plan for attacking the island’s heavy debt, analysts are beginning to publicly question the proposals and even the financial assumptions on which they are based, the New York Times reported today. The doubts suggest that Gov. Alejandro García Padilla’s strategy to persuade bondholders and other investors to voluntarily help the island restructure the debt — and take losses on their investments as a result — is a long shot. One credit analyst, Ryan Brady of Morgan Stanley, said that it appeared that the planners had greatly overstated Puerto Rico’s financial needs over the next five years. As a result, he said in a private presentation to clients, Puerto Rico was hoping to get $14 billion in concessions from its creditors, when in fact it might need as little as $5.7 billion. And Sergio M. Marxuach, public policy director for the Center for a New Economy, a research institute in San Juan, P.R., said yesterday that the five-year plan appeared to be “tilted toward austerity rather than growth,” which could undermine its key goal of reviving the island’s economy.
There were 43 lobbying filings related to bankruptcy issues in the second quarter of 2015, up 26 percent from the previous quarter, according to a Bloomberg Government analysis on lobbying trends. The lobbying filings were up 72 percent from the second quarter of 2014 when there were 25 such filings, the data show. In the second quarter of this year, there were a total of 12 new filings by 11 separate companies that added bankruptcy as a lobbying issue, the BGOV data show. The increase is probably being driven by lobbying on issues related to Puerto Rico, according to BGOV. Seven of the 12 new filings referenced Puerto Rico or H.R. 870, which is the bill that would allow Puerto Rico's municipalities to file for bankruptcy protection, the data show.
A group of Hispanic members of Congress called on the Treasury secretary, Jacob J. Lew, to take a more muscular role in Puerto Rico’s debt crisis and prevent what they said could become “an economic catastrophe” on the island, the New York Times reported today. The eight lawmakers, all Democrats, said that bankruptcy was the “best hope” both for Puerto Rico and its many creditors on the U.S. mainland. They urged Lew to work with Congress to move two pending bankruptcy bills forward, and to intervene in other ways, as Treasury secretaries did during the financial crisis of 2008. Read more.
The comprehensive proposal offered by Puerto Rico Gov. Alejandro García Padilla of Puerto Rico for reversing the territory’s downward financial spiral could actually work, but only with a major assist from Congress, according to a commentary in yesterday’s New York Times. Although the Puerto Rico Fiscal and Economic Growth Plan released last week outlines a wide range of proposals, its essence lies in two key features: Puerto Rico would establish a financial control board with broad budgetary authority, and it would restructure much of its $71.1 billion debt burden, according to the commentary. Fiscal reform alone isn’t enough, since a $14 billion financing gap will remain through 2020, according to the new plan’s estimates, even if all the reforms are implemented. The simplest way for Puerto Rico to achieve its other key objective, reducing the payments on its debt, would be for its public electricity provider, PREPA, and other troubled service corporations to restructure their debt in municipal bankruptcy, according to the commentary. Read more.
