Puerto Rico and its federally appointed oversight board have reached a deal to avoid litigation over much-needed economic overhauls in the bankrupt U.S. territory, Reuters reported. Governor Ricardo Rosselló and the island’s legislature agreed to repeal protections that make it difficult for private-sector employers to fire workers at will, in hopes of spurring on-island hiring, Rosselló said in a statement on Sunday. In return, the board will not push to eliminate Christmas bonuses or reduce sick days, the statement said. The board said in a separate statement yesterday that it planned to revise accordingly the island’s fiscal turnaround blueprint, which Rosselló had opposed, avoiding litigation over its implementation.
The Justice Department is attempting to replace the top federal prosecutor in Puerto Rico, who has been quietly campaigning to keep her job, WSJ Pro Bankruptcy reported. The Justice Department is close to proposing a candidate to succeed Rosa Emilia Rodríguez-Vélez, the U.S. attorney for the district of Puerto Rico. Ending her nearly 12-year tenure in office would require the U.S. Senate to confirm a replacement, a process that could take weeks or months. The White House also supports replacing Rodríguez-Vélez. U.S. attorneys, while somewhat autonomous, do take direction from Justice Department headquarters on prosecutorial priorities. Efforts to replace Rodríguez-Vélez coincide with rising concerns from the Federal Bureau of Investigation’s San Juan field office and other federal authorities about potential fraud and corruption in Puerto Rico’s public contracting.
Major Puerto Rico creditors agreed how to split up sales-tax collections and cut $10 billion in public debt but were rebuffed by the U.S. territory’s federal financial supervisors, WSJ Pro Bankruptcy reported. The settlement framework unveiled yesterday concerns future sales-tax revenue collections that Puerto Rico transferred to a public corporation to raise $18 billion in securitization bonds known as Cofinas. Competing creditors have tried to free up that money in Puerto Rico’s court-supervised bankruptcy proceeding to pay down other government debts. The federal board overseeing Puerto Rico’s finances would need to approve any settlement for it to take effect. An oversight board spokesman said the proposed terms were crafted without its input “and are completely unaffordable.” The proposed deal swings the pledged taxes to a new lockbox which would distribute securities to participating debtholders at a discount to their claims, providing Cofina bondholders 64.5 cents on the dollar.
Puerto Rico’s federally appointed oversight board yesterday rejected the U.S. territory’s budget proposal for next fiscal year, saying it did not comply with a financial turnaround plan for the island approved by the board last month, Reuters reported. In a letter to Governor Ricardo Rossello, the board said that the budget’s expense projections were inconsistent with the turnaround plan, which is designed to be a blueprint for how Puerto Rico will recover from the twin challenges of bankruptcy and September’s Hurricane Maria. The board directed Rossello to submit a compliant budget by May 15. Puerto Rico has $120 billion in combined bond and pension debt it cannot pay, the biggest insolvency in U.S. government history. The board on April 19 approved a fiscal turnaround plan that included pension cuts and labor reforms, which Rossello has said he will refuse to implement. The plan forecasts $6.7 billion in debt payment ability for Puerto Rico through fiscal year 2023. But Rossello’s proposed budget does not allocate for debt service, while including other expenses that are not in the plan, like $100 million in municipal spending.
Puerto Rico Gov. Ricardo Rosselló’s proposed fiscal year 2019 General Fund budget allocates $0 for paying the island's central government debt, the Bond Buyer reported. “The governor is clearly trying to lay the responsibility of debt service on the feet of the [Oversight Board] so he can disavow any money going to creditors,” said Shaun Burgess, portfolio manager for Cumberland Advisors, which owns some insured Puerto Rico debt. According to the April 19 board-certified fiscal plan, the central government and its related borrowing entities are contractually obligated to pay $2.54 billion in debt service in fiscal year 2019. The board’s March 13, 2017 certified fiscal plan put the figure at $3.84 billion in that year. The earlier plan included four entities that were not included in the April plan. These entities are contractually obligated to pay $398 million in fiscal year 2019 so this only partially explains the $1.3 billion distinction between the plans.
Puerto Rico’s federal supervisors are preparing to scrutinize the U.S. territory’s bankruptcy advisers, reflecting broader concerns about potential overcharging and conflicts of interest in public contracting, WSJ Pro Bankruptcy reported. The federal board overseeing Puerto Rico’s finances is considering making new disclosure requests to the law firms and financial experts hired to navigate the largest-ever U.S. municipal debt restructuring. U.S. and local lawmakers have criticized the amounts being spent on attorneys and bankers, including the oversight board’s own advisers, at a time when pensioners and creditors are facing cuts. Its initiative is aimed at uncovering any undisclosed side deals or subcontracts and whether any third parties act as pay-to-play gatekeepers for public contracts. Read more.
In related news, U.S. House of Representatives Natural Resources Committee Chairman Rob Bishop (R) said on Friday that he supports the government of Puerto Rico’s efforts to introduce bipartisan legislation in Congress to grant full statehood to the U.S. commonwealth territory, Reuters reported. “I am supportive of statehood. I think it is a solution that is long overdue,” Bishop, a Republican from Utah, said during a visit to the island that was broadcast over the internet. Puerto Rico is still in the throes of recovering from September’s devastating spate of hurricanes that killed dozens and completely knocked out power, deepening the economic woes for the island’s 3.4 million U.S. citizens. Many of them have decamped for the mainland United States in search of jobs and social services. Bishop’s committee has overseen the process, well before the hurricanes, of addressing Puerto Rico’s financial insolvency. It declared the largest municipal bankruptcy in U.S. history one year ago when it said that it could not service its $120 billion in debt and pension obligations. Committee aides gave no firm timetable for holding a hearing on Puerto Rico statehood much less advancing statehood legislation. Read more.
Puerto Rico’s most-recent audited financial statements are almost four years old, casting doubt over just how broke the bankrupt island is as creditors fight over its cash and residents protest proposed austerity measures in the streets. The U.S. territory’s federal oversight board signaled it’s tired of waiting, Bloomberg News reported. The panel is asking Puerto Rico to provide by May 7 a timetable for when it plans to make public the audited financial statements for fiscal years 2015 through 2017, according to a letter from the panel to Gerardo Portela, the executive director of the commonwealth’s fiscal agency, that was posted yesterday on the board’s website.
Puerto Rico demonstrators battled police on San Juan’s streets as they marched against proposed cuts to retirement benefits and looser labor laws as the bankrupt island seeks to reduce $74 billion of debt, Bloomberg News reported. Thousands of protesters came out to contest retirement-plan changes that a federal board overseeing the bankrupt commonwealth’s finances says would help end years of overspending as it also seeks concessions from bondholders. Tension broke out as young protesters tried to enter the Hato Rey neighborhood, San Juan’s banking center, where helmeted police officers wearing gas masks formed lines to block them from advancing. The group called itself Se Acabaron Las Promesas, or the Promises are Finished, a play on the law called Promesa that Congress passed in 2016 to resolve Puerto Rico’s debt crisis. The Promesa law established the oversight board, which wants Governor Ricardo Rosselló to begin reducing pension benefits in 2020 by an average 10 percent for some retirees as the island’s largest retirement system has run out of cash. Rosselló and island lawmakers have rejected the proposed changes and workers are vowing to fight for the benefits that they’ve been promised.
