%1

Puerto Rico’s governor projected his bankrupt, hurricane-ravaged U.S. territory will carry budget gaps for the next four fiscal years, leaving nothing to pay back the island’s $72 billion in bond debt until fiscal year 2022, according to Reuters. Governor Ricardo Rosselló made the projections in a revised fiscal turnaround plan released yesterday. The plan assumes a minimum of $35.3 billion in federal aid to help the island recover from Hurricane Maria, which devastated Puerto Rico in September, through the U.S. Federal Emergency Management Agency’s (FEMA) public assistance program. A previous turnaround plan, approved by Puerto Rico’s federally appointed financial oversight board last April, had projected $800 million a year for debt repayment, roughly a quarter of what it needs annually. That was before Maria slammed Puerto Rico, killing dozens, cutting power to all 3.4 million residents, and damaging and destroying tens of billions of dollars in housing. The new plan projects that Maria will spur increased inflation and nearly triple a contraction in gross national product this fiscal year, as well as drive some 600,000 more people from the island in the next five years. Read more.

In related news, the Puerto Rican governor’s plan to privatize PREPA, the island’s bankrupt power utility, could herald hard times for holders of its $9 billion in bonds, who are concerned the deal could strip their ability to collect on their investments, Reuters reported. Governor Ricardo Rosselló on Monday unveiled an 18-month plan to sell pieces of PREPA to potential private buyers, including renewable energy producers. The plan will need buy-in from the federally appointed board managing Puerto Rico’s finances, which has voiced support for privatization in the past, as well as approval by the court overseeing Puerto Rico’s bankruptcy. PREPA’s investors, many of them hedge funds and mutual funds, have long called for wresting the utility from government control, but a piecemeal privatization push run by the government is not what they had in mind. Read more.

Puerto Rico Gov. Ricardo Rosselló said yesterday that he would put the island’s power utility up for sale, a watershed step toward dismantling a deeply indebted public monopoly that came under intense criticism for its response to Hurricane Maria, the Wall Street Journal reported. Gov. Rosselló said that the government-owned utility known as PREPA would cease to exist in its current form and its assets sold to private companies in the hopes they will invest in modernizing Puerto Rico’s troubled electrical grid. “The power system is not designed for the needs of today’s Puerto Rico,” he said. “PREPA assets will be sold to companies who will transform the generation system into a modern, efficient, and less expensive one for the people of Puerto Rico.”

Puerto Rico’s federally appointed financial oversight board on Friday questioned island officials about how they planned to centralize financial control after the bankrupt U.S. territory discovered nearly $7 billion in previously unreported money, Reuters reported. During a two-hour hearing that shed light on decades of disorganized and inconsistent accounting, the board asked about the government’s plans to consolidate a public sector that has more than 100 agencies. Puerto Rico is navigating at once the largest government bankruptcy in U.S. history, with $120 billion of combined bond and pension debt, and its worst natural disaster in 90 years in September’s Hurricane Maria, which killed dozens and decimated local infrastructure.

The U.S. government is refusing some of Puerto Rico’s requests for federal loan assistance, citing the U.S. territory’s “higher than expected” cash holdings since a devastating hurricane struck four months ago, WSJ Pro Bankruptcy reported. The Federal Emergency Management Agency said on Jan. 9 that Puerto Rico appears to have too much money at its disposal to qualify for taxpayer-funded disaster loans and can only borrow federal dollars if its cash position falls below a certain level. Puerto Rico has “consistently” had upwards of $1.5 billion in the bank following Hurricane Maria, according to a FEMA decision letter reviewed by The Wall Street Journal. Gov. Ricardo Rosselló had applied for potentially billions of dollars in federal financing to make up for a slowdown in tax collections and business activity following the storm, which wrecked Puerto Rico’s power grid and touched off a humanitarian crisis. More than a third of power customers in Puerto Rico still haven’t had service restored while thousands of residents have fled to the U.S. mainland.

Puerto Rican Gov. Ricardo Rossello on Friday slammed the federal government’s response to Hurricane Maria, saying residents of the island, who are U.S. citizens, are being treated like “second-class citizens,” the Associated Press reported. Rossello and other critics have complained that the federal aid given to Puerto Rico after its worst natural disaster has not been equal to that given to Florida, Texas and California after similar disasters. The Puerto Rican governor is pushing for a supplemental disaster-aid package and relief from the federal tax-reform bill. He urged federal lawmakers to grant the country supplemental Medicaid funding and to eliminate the cost-sharing requirements, which he said was done in Louisiana.

Aurelius Capital Management, a major Puerto Rico bondholder, asked a federal judge on Wednesday to throw out the U.S. territory’s historic bankruptcy, challenging the constitutionality of the board overseeing the island’s finances, Reuters reported. At a hearing in federal court in New York, Aurelius told U.S. District Court Judge Laura Taylor Swain that Puerto Rico’s oversight board was appointed by the U.S. Congress in violation of the Constitution’s appointments clause, which governs how certain public officials are designated. “Congress can go back and do this right,” Aurelius lawyer and former U.S. Solicitor General Theodore Olson said. “The president can make new appointments.” The bankruptcy case filed by the board last May on Puerto Rico’s behalf should be thrown out, Olson added during a three-and-a-half hour hearing. Judge Swain, who is presiding over Puerto Rico’s bankruptcy case, did not indicate when she may rule, and her decision is certain to be appealed by whichever side loses. Read more.

In related news, Puerto Rico’s federally-appointed oversight board on Wednesday granted a two-week extension for the bankrupt island’s government to deliver a revised blueprint for its fiscal turnaround. The board said in a statement that the turnaround plan, initially due on Wednesday, will now be due on Jan. 24. Fiscal plans for Puerto Rico’s debt-laden power utility, PREPA, and sewer authority, PRASA, were extended to the same date. Puerto Rico, burdened by $120 billion in combined bond and pension debt, filed the largest U.S. municipal bankruptcy in history last May. Its finances are under the management of a seven-member board appointed by federal lawmakers. Read more.

The U.S. federal board managing Puerto Rico’s finances will consider fast-tracking four energy projects that would invest a combined $1.47 billion in the island’s decimated power grid, Reuters reported. The board said yesterday that it was opening a 30-day public comment period on the four proposals, which include a controversial waste-to-energy incinerator plan by New York-based Energy Answers International Inc. “In total, the four projects represent close to $1.5 billion in investment — almost all of which will be private capital — and have the potential to generate more than 8,200 direct, indirect and induced jobs,” the board said in statement, adding that final decisions would come by early April. The island’s power utility, known as PREPA, was already bankrupt when the storm hit, laden with some $9 billion in debt and outdated infrastructure.

The number of Puerto Ricans who fell behind on their home loans following the devastation of Hurricane Maria may be peaking while federal mortgage guarantors debate how long to protect property owners from foreclosure, WSJ Pro Bankruptcy reported. The rate of mortgage borrowers in Puerto Rico either delinquent on their loans or in foreclosure rose in November to 37.2 percent from 35.4 percent, according to mortgage data firm Black Knight Inc. That compares with 10.5 percent the month before Hurricane Maria slammed in Puerto Rico, devastating its power grid and slowing economic activity to a crawl. Some 95,000 mortgages, or roughly one in four on the island, are now past due because of recent weather events, Black Knight said.

New leadership at Puerto Rico’s beleaguered electric utility may not be sufficient to compensate for missteps following Hurricane Maria that led to delayed work, recurrent blackouts and more than $500 million in contracts with untested companies now under federal investigation, according to a Reuters commentary. A management shakeup today will not by itself cure the chaotic and slow power restoration efforts two months after the hurricane struck the island, according to the commentary. So far, authorities say that only 54 percent of the power is restored. Federal and local leaders have struggled to repair the devastation wrought by the storm, which knocked out power to all 3.4 million residents and killed dozens of people. PREPA’s chief executive Ricardo Ramos stepped down unexpectedly last week, days after congressional hearings on the restoration. New interim head Justo Gonzalez, previously director of generation for the bankrupt utility, inherits a situation that even before the storm was far more complicated than that of any U.S. utility. He faces growing pressure from the U.S. Congress, federal regulators, the board overseeing Puerto Rico’s finances and longtime creditors to whom the territory owes $72 billion in debt.