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Moody’s Investors Service said that a series of earthquakes that recently hit Puerto Rico poses a setback for the bankrupt U.S. territory in terms of its economic recovery and ability to retain residents and businesses, according to Reuters. The quakes included one with a magnitude of 6.4 on Jan. 7, the Caribbean island’s most powerful earthquake in 102 years. Governor Wanda Vazquez estimated damages at $110 million and has requested a major disaster declaration from President Donald Trump. Moody’s said the earthquakes highlight “significant environmental risks” facing Puerto Rico, which has been in federal court since 2017 attempting to restructure about $120 billion of debt and pension obligation through a form of municipal bankruptcy. Read more. 

ABI supports Puerto Rico, and looks forward to the upcoming Caribbean Insolvency Symposium at the El San Juan Hotel, February 3-5, 2020. From the time that Hurricane Maria devastated the island in September 2017 through the recent series of earthquakes that damaged Guánica, some two hours to the southwest of San Juan, ABI has remained committed to supporting its many friends and members on the island, as well as the wider Puerto Rico community affected by these natural disasters. The Caribbean Insolvency Symposium will go on as planned and registration remains open and active. At a time when Puerto Rico faces many challenges, among them a fragile economic situation, one of the best ways to support the island is through events like our upcoming Symposium. Register here. 

Unceasing seismic activity on a fault just off the southern coast has pushed damage estimates to $110 million, and municipal authorities are weighing evacuation orders for residents in pueblos such as Guánica, where another 6-magnitude aftershock Saturday rocked the region, the Washington Post reported. Gov. Wanda Vázquez Garced said on Saturday that she had signed a request for a “major disaster declaration” that requires approval from the White House, a move that would release more resources for the power grid, building inspectors and individual assistance. The island is still waiting on more than $18 billion in federal funding after Hurricane Maria devastated much of the island in 2017. Public schools will not reopen until another round of inspections take place, and there are an estimated 8,000 people in shelters, camps or refuges. Nearly 60,000 people are without power, concentrated in the most impacted areas.

Puerto Rico Governor Wanda Vazquez, who had said that she was reluctant to take power after her predecessor resigned in disgrace this past summer, yesterday declared her candidacy for the same office in next year’s elections, Reuters reported. Vazquez was sworn in as governor in August when widespread protests led to the resignation of Gov. Ricardo Rosselló, who was caught up in a scandal over profane chat messages and federal corruption charges against two officials of his administration. Vazquez, who served as justice secretary and was in line to succeed Rosselló, was also targeted by protesters for alleged corruption and being too close to Rosselló. Vazquez will run under the pro-statehood New Progressive Party. She will face Pedro Pierluisi, a former representative of the commonwealth in the U.S. Congress. Rossello tapped Pierluisi in late July to become his successor. But Pierluisi was forced out of office a few days later by the territory’s Supreme Court, which ruled the selection was unconstitutional. Puerto Rico is still trying to recover from devastating hurricanes that hit the Caribbean island in 2017. It is also working its way through a bankruptcy process to restructure about $120 billion of debt and pension obligations.

A month after Puerto Rico filed its historic bankruptcy case in 2017, a complaint was filed by a group of hedge funds that had purchased Puerto Rican bonds around 2015 and were concerned that the bankruptcy would prevent them from recouping the bonds’ full value, according to a New York Times analysis. According to the complaint, the Puerto Rican Constitution mandated the repayment of certain types of bond debt, but the island’s latest budget was instead pouring money into services that were “nonessential,” leaving the bondholders high and dry. The hedge funds argued that this was illegal and sought to point out some “nonessential” expenses to the court. The presiding judge dismissed the complaint. Among the plaintiffs on that complaint were a few subsidiaries of Aurelius Capital Management. Its chairman, Mark Brodsky, made a fortune in distressed sovereign debt, purchasing bonds from countries that appeared to be in financial trouble, watching as they defaulted, then suing in court for full repayment. While Brodsky held only a sliver of Puerto Rico’s debt — $379.5 million, according to court filings, or about 0.5 percent — he could, by deploying his skills in the legal system, punch above his weight in bankruptcy proceedings. Though the rainy-day fund complaint was dismissed, Aurelius had another one in the works. Later in 2017, the fund was back in court with a separate clique of bondholders. This time, it plied a totally different method. Instead of firing around the edges, trying to pick off the budgets of the Boys & Girls Club and the ballet company, the firm aimed at the bull’s-eye: It leveled an argument that the bankruptcy process itself violated the U.S. Constitution. For the next two years, with this argument in hand, Aurelius scaled the federal appellate system. The District Court ruled against it, so it appealed; the First Circuit agreed on the merits but withheld a remedy, so it appealed again. Finally the case made its way to the steps of the U.S. Supreme Court, which heard oral arguments in October and will issue a ruling before next August. If Aurelius wins, it will be one step closer to compelling Puerto Rico — a territory poorer than any state in the union — to pay the full $379.5 million that the firm most likely acquired at a steep discount. Read more. 

In related news, two years after Hurricanes Maria and Irma, records show the Federal Emergency Management Agency's work on long-term recovery on the islands is crawling compared with some states on the mainland, the New York Times reported. An examination of the agency’s data and records demonstrates the degree to which the recovery from Hurricanes Maria and Irma on America’s Caribbean islands has been stalled compared with some of the most disaster-prone states on the mainland, leaving the islands’ critical infrastructure in squalor and limbo. FEMA officials say 190 long-term recovery projects have been funded in Puerto Rico — out of more than 9,000 requests. On the U.S. Virgin Islands, about 218 projects had funding — out of more than 1,500 requests and still counting. In contrast, about 3,700 large and small permanent work projects had obligated funding in Texas, two years after Hurricane Harvey hit the Gulf Coast in August 2017. More than 3,700 such projects had been funded over that time in Florida. That disparity underscored how a federal government in Washington has treated citizens on the mainland, with voting representatives in Congress and a say in presidential contests, compared with citizens on the islands. Further complicating the recovery are issues of corruption, often amplified by President Trump and, islanders say, questions of race. Jeffrey Byard, the associate administrator for the Office of Response and Recovery at FEMA, said the agency had never seen recovery efforts like those from the natural disasters of 2017, which included Hurricanes Harvey, Maria and Irma, as well as wildfires in California. Read more.