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Puerto Rico’s Power Woes Are Decades in the Making

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As residents grapple with power outages across the entire island, the task of turning the lights back on falls to an electrical utility saddled with rickety infrastructure, workforce reductions and financial troubles so deep it declared a form of bankruptcy in July, the Wall Street Journal reported today. Earlier this month, Hurricane Irma sideswiped the island, knocking out power to about 70 percent of the customers of the Puerto Rico Electric Power Authority (PREPA). The utility had made significant strides in restoring electricity when Hurricane Maria struck on Wednesday, wiping out power to 100 percent of its customers. Ricardo Ramos, chief executive of PREPA, said that it could take months for power to be restored across the island. The prolonged loss of power and disruption to businesses “could delay the economic recovery of the island,” said Rick Donner, vice president and senior credit officer at Moody’s Investors Service. Puerto Rico is contending with a decade-long recession, declining population and $73 billion in debt. A federal board is overseeing its finances, and in May, the island declared what amounts to the largest-ever U.S. municipal bankruptcy.

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Puerto Rico Judge Advises Legal Issues Be Put on Hold after Hurricane Maria

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The devastating blows dealt to Puerto Rico by Hurricanes Irma and Maria are putting the woebegone U.S. territory’s bankruptcy on the backburner, Reuters reported yesterday. The team of judges overseeing the case has directed parties to put legal issues on hold indefinitely, as the territory recovers from an unprecedented one-two punch of natural disasters. Judges have also told parties the island’s fiscal turnaround blueprint may need to be redrafted once the cost of the destruction becomes clear, as well as how much aid Puerto Rico is expected to get from the U.S. Federal Emergency Management Agency. Maria was ranked a Category 4 storm, near the top of the five-step Saffir-Simpson scale, with winds of up to 155 mph (250 kph), when it made landfall on Puerto Rico on Wednesday as the strongest storm to hit the island in nearly 90 years. It struck less than two weeks after Hurricane Irma wreaked havoc there. Officials in Puerto Rico have said power could be out for months, while devastating flooding continues to ravage low-lying areas on the mountainous Caribbean isle.

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Maria Latest Threat to Puerto Rico After $1 Billion Irma Hit

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Hurricane Maria hit Puerto Rico today just two weeks after Irma caused as much as $1 billion in damages on the bankrupt island, Bloomberg News reported today. Maria’s top winds were at 155 miles an hour, the National Hurricane Center said in a notice around 6 a.m. EDT. Maria could cause $30 billion in damage to Puerto Rico and the U.S. Virgin Islands, said Chuck Watson, a disaster modeler for Enki Research. Puerto Rico filed for bankruptcy in May after years of economic decline while a series of defaults have effectively left it unable to raise money in the capital markets. Its aging government-owned electric utility operates under court protection from creditors and its emergency fund stood at about $32 million before Irma knocked out power to hundreds of thousands. Read more. 

For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.

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Puerto Rico's Debt Investigation Will Be Broad, Official Says

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The independent investigation of Puerto Rico’s $74 billion debt crisis will be a comprehensive look at the borrowing that pushed the island into its record-setting bankruptcy, according to the executive director of the island’s federal oversight board, Bloomberg News reported yesterday. The federal panel this month hired the law firm Kobre & Kim LLP to conduct a probe of Puerto Rico’s financial disclosures, how its bonds were marketed and other issues surrounding the borrowing that pushed it to the brink. “It’s going to be as broad as can be,” Natalie Jaresko, the board’s executive director, said in an interview Monday. “There’s no desire to limit it in any way. Once you’ve started down this road the only way to get credible conclusions from it is to be broad, open and inclusive.” Puerto Rico filed for bankruptcy in May after years of borrowing to cover over budget deficits. A U.S. emergency rescue law enacted last year gave the oversight board broad authority over the territory’s finances, including the power to investigate the causes of its crisis. The board is at odds with a formal committee of unsecured creditors who claim the oversight panel has delayed the investigation. Read more. 

In related news, Puerto Rico, already contending with the aftermath of a storm that left as much as $1 billion of damage and hundreds of thousands still without power, faces even more upheaval with Hurricane Maria set to hit as soon as tonight, Bloomberg News reported. The government ordered rationing of basic necessities, including water and batteries, although those items were already gone from some San Juan store shelves as residents prepared for what could be the worst storm to hit the U.S. territory in decades. Read more. 

For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.

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Puerto Rico Bonds Gain After Judge Rules Against Highway Debt

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Some Puerto Rico general-obligations gained in value after a court ruled that the commonwealth’s transportation agency would retain toll revenue to cover operations instead of paying bondholders, Bloomberg News reported yesterday. Puerto Rico general obligations with an 8 percent coupon traded Tuesday at an average 59.3 cents on the dollar, the highest level since July 20 and up from 57.8 cents the day before, according to data compiled by Bloomberg. U.S. District Court Judge Laura Taylor Swain last week ruled that the island’s Highways and Transportation Authority will continue using toll revenue to maintain its system rather than pay bondholders as the agency works its way through bankruptcy. Read more. 

For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.

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Analysis: Potential Impact of Hurricanes Harvey and Irma on Bankruptcy Filings

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ABI Bankruptcy Brief


ABI Bankruptcy Brief
Click here to view online version.

September 7, 2017
 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Analysis: Potential Impact of Hurricanes Harvey and Irma on Bankruptcy Filings



by Ed Flynn, ABI



Hurricane Harvey did extensive damage to parts of Texas and Louisiana. Preliminary estimates show that it might be the most expensive hurricane ever. Additionally, Hurricane Irma is bearing down on the state of Florida with potentially catastrophic results. Millions of people will suffer economic losses as a result. Will these storms have an impact on bankruptcy filings in the affected areas? For this analysis, the four most expensive hurricane events were examined: Katrina, Sandy, Andrew and Ike. Additionally, the four hurricanes that hit Florida in 2004 (Charley, Frances, Ivan and Jeanne) were combined into one event. Total filings for the three years prior to the hurricane were compared to filings in the three years after.

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ABI's thoughts are with those suffering in the wake of Hurricane Harvey. For information and ways to help, please click here.

Senate Passes Bill on Storm Aid, Debt Limit and Government Spending



The Senate today approved a contentious deal struck between President Donald Trump and Democratic leaders that rolled together emergency relief for Harvey victims with a short-term extension of the government’s funding and its borrowing limit, the Wall Street Journal reported. In an 80-17 vote on legislation that came together swiftly today, the Senate approved $15.25 billion for relief and recovery efforts for the Harvey and Irma hurricanes, as well as provisions keeping the government running and its debt limit suspended until Dec. 8. The government’s current funding expires by Oct. 1, and Treasury Department officials had said that Congress needed to raise the debt limit by month’s end to avoid any risk of defaulting on the debt. The package now heads to the House, which is expected to vote on it Friday. Many conservatives are reluctant to vote to increase the debt limit without taking any other steps to curb federal spending. But most, if not all, Democrats are likely to support it, as are many Republicans from Texas, Louisiana and Florida, all states affected by or bracing for the storms.

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U.S. Banks May Alter Loans in Light of Hurricane Irma



Regulators say that U.S. banks may temporarily lighten loan terms to help those affected by Hurricane Irma and that some regulatory paperwork can be filed late in light of the storm, Reuters reported yesterday. Dangerous Category 5 Hurricane Irma hammered the Caribbean island of St. Martin yesterday and is expected to hit Florida over the weekend. “Bankers should work constructively with borrowers in communities affected by Hurricane Irma,” the Federal Reserve wrote in a memo with other regulators. The agency sent a similar directive ahead of Hurricane Harvey, which hit Texas late last month. “The agencies recognize that efforts to work with borrowers in communities under stress can be consistent with safe-and-sound banking practices,” reads the memo, which was also signed by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

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In related news, a New York Times analysis today found that if a storm the size of 1992’s Hurricane Andrew were to strike Florida today in the same spot, it would be far more catastrophic — causing up to $100 billion in damage, according to a recent analysis by Swiss Re, the reinsurance firm. That’s even after accounting for the fact that South Florida has strengthened its building codes since Andrew. Central and South Florida have grown at a breathtaking pace since 1990, adding more than 6 million people. High-rises and condominiums keep sprouting up along Miami Beach and other coastal areas. A lot more valuable property now sits in harm’s way. With Hurricane Irma — currently a Category 5 storm and one of the strongest hurricanes ever recorded in the Atlantic — possibly set to pummel Florida this weekend, the state is confronting the fact that rapid development has made its coastline far more vulnerable to hurricane damage than it used to be.

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Analysis: ‘Too Big to Fail’ Label May Shrink for Some Firms Under Trump



The Trump administration is examining the labeling of large non-bank financial institutions as “too big to fail,” with a closely anticipated Treasury Department report on the initiative expected next month. It is unclear whether the White House will move to entirely eliminate the label, a product of the Dodd-Frank financial regulations, but analysts and industry officials predict that its use will most likely be curtailed significantly, according to the New York Times on Monday. “This is probably a tool that goes dormant for the time being,” said Edward Mills, a financial policy analyst with FBR Capital Markets. Just two non-bank companies are designated as “systemically important financial institutions,” or SIFIs: the insurers American International Group and Prudential Financial. That number is down from four a couple of years ago. Under Dodd-Frank, banks with more than $50 billion of assets are also subject to heightened standards, including annual stress tests. While such banks are commonly referred to as being systemically important, they do not receive a formal designation.

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NYC Landlords That Can’t Find Buyers Turn to Borrowing Instead



At a time when commercial-property purchases have slowed to a trickle, Manhattan landlords who can’t sell are still getting money out of their buildings — by turning to lenders, Bloomberg News reported yesterday. A growing chasm between what buyers are willing to pay and what sellers think their properties are worth has put the brakes on deals. In New York City, the largest U.S. market for offices, apartments and other commercial buildings, transactions in the first half of the year tumbled about 50 percent from the same period in 2016, to $15.4 billion, the slowest start since 2012, according to research firm Real Capital Analytics Inc. At the same time, the market for debt on commercial properties is booming. Across the U.S., sales of office towers, apartment buildings, hotels and shopping centers have been plunging since reaching $262 billion nationally in 2015, just behind the record $311 billion of real estate that changed hands in 2007, according to Real Capital. Property investors are on the sidelines amid concern that rising interest rates will hurt values that have jumped as much as 85 percent in big cities like New York, compounded by overbuilding and a pullback of the foreign capital that helped power the recent property boom.

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Participate in Next Consumer Commission Meeting on Sept. 15 at NABT



The Committee on Chapter 7 of the ABI Commission on Consumer Bankruptcy will hold a public meeting during the National Association of Bankruptcy Trustees (NABT) on September 15 from 12:30 to 2:00 PM in the Marriott New Orleans in New Orleans, Louisiana. Attendees are invited to speak at the public meeting. For more information, including submission guidelines, please click here.



A list of topics under consideration by the Commission is available on the Commission’s website at https://consumercommission.abi.org/. To submit any comments or suggestions for the Commission, please e-mail consumercommission@abiworld.org.



Read available written testimony from the 7/15 open meeting at NACTT’s annual seminar by clicking at the bottom of this page (linked by name).

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Senior Citizens Becoming Overwhelmed with Student Loan Debt



Senior citizens are becoming overwhelmed with student loan debt — not their own student loan debt, necessarily, but rather student loans that they either borrowed themselves, such as a parent-plus loan, or may have cosigned with their children and even grandchildren, according to a recent blog post.



To read more on this blog and all others on the ABI Blog Exchange, please click here.
 
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Puerto Rico’s Finances Add to Vulnerability in Hurricane

Submitted by jhartgen@abi.org on

Puerto Ricans have ample experience with hurricanes, but the storm approaching yesterday brought an added level of anxiety. The island’s dire financial straits have left essential public works, from power plants to retaining walls, weakened by years of scrimping on maintenance, the New York Times reported today. Puerto Rico sought bankruptcy protection in May, burdened with about $123 billion in bond debt and unfunded pension obligations. Its case is being handled in federal court under a special new law, called PROMESA, because the existing bankruptcy law excludes Puerto Rico. Under PROMESA, Puerto Rico’s finances must be supervised by a federal board until its house is back in order, a process that is expected to take years. Relations between the board and the elected government of Gov. Ricardo Rosselló were contentious even before Hurricane Irma, with the governor first agreeing to a five-year austerity plan, then reversing course and threatening to go to prison rather than accepting the entire package. In particular, the governor has refused to furlough government workers, and to reduce the pensions of retired government employees by an average 10 percent. The fiscal oversight board has sued the governor, asking the court to order him to carry out the entire austerity plan. The furloughs were supposed to have begun on Sept. 1. Despite the legal dispute, the board’s executive director, Natalie Jaresko, said in a statement Wednesday that the board was “working closely with Governor Rosselló to coordinate support for Puerto Rico in the aftermath of the storm.” Read more. 

For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.

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Hurricane Irma, a Category 5 Hurricane, Heads for Puerto Rico

Submitted by jhartgen@abi.org on

As Hurricane Irma, one of the most powerful Atlantic storms ever recorded, aimed for Puerto Rico and other islands throughout the Caribbean, residents scrambled yesterday to rush out of flood zones, stock up on the last available water, food and gas, shutter their homes and brace for what is now a Category 5 hurricane, the New York Times reported today. “We have to prepare for an event that we have never experienced here,” said Gov. Ricardo Rosselló of Puerto Rico. It has been nearly a century since Puerto Rico was hit by a Category 5 storm, according to the National Hurricane Center and Bryan Norcross, the hurricane specialist at The Weather Channel. President Trump declared a state of emergency in Puerto Rico, Florida and the United States Virgin Islands yesterday. Puerto Rican officials have warned that the island’s fragile electrical grid could be shut down for days, weeks or even months in some areas. In his news conference, Mr. Rosselló and emergency officials warned that with such powerful winds expected to thrash the island, infrastructure, houses and the phone system will inevitably be damaged.

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