Puerto Rico’s governor said that he would travel to Washington, D.C., this week to lobby Congress to recognize the U.S. territory’s vote in favor of becoming the 51st state, even if it means surrendering its newfound debt-restructuring powers, the Wall Street Journal reported today. Despite boycotts by opposition parties that depressed voter turnout, Puerto Rican voters delivered “a clear rejection of the current colonial status and a path forward through statehood,” said Gov. Ricardo Rosselló. Voters opted for U.S. statehood by a 97 percent margin in Sunday’s vote, though turnout was just 23 percent as opponents of the governor urged their constituents to snub the vote. The last time Puerto Rico called a plebiscite on its political status, in 2012, 78 percent of voters turned out. The vote also took place without approval from the Justice Department, which had earlier raised objections to the governor’s proposed ballot language. He said he would attempt to convince members of Congress that the 3.4 million island residents had nonetheless supplied a mandate in favor of becoming the 51st state.
Puerto Rico's governor said yesterday that the island's vote in favor of becoming a U.S. state, despite low voter turnout and widespread boycotts, was "a fair and open" process that U.S. Congress should act upon, Reuters reported. An island-wide referendum on Sunday favored statehood in a 97 percent landslide, though voter turnout reached just 23 percent as opponents of Governor Ricardo Rossello's push to become a state boycotted the vote. The non-binding plebiscite is not expected to sway the U.S. Congress, which would have to agree to make Puerto Rico a state. Currently a U.S. territory, the island is struggling with $70 billion in debt and a 45 percent poverty rate, and is not viewed as a priority in Washington, D.C.
The economically struggling U.S. island territory of Puerto Rico voted overwhelmingly yesterday in favor of becoming the 51st state, although turnout was low and adding another star to the U.S. flag likely faces an uphill battle in Congress, Reuters reported. A government website for the non-binding referendum, Puerto Rico's fifth such plebiscite since 1967, showed 97 percent supported statehood. Only 23 percent of the 2.2 million eligible voters participated in the vote. Puerto Rico Governor Ricardo Rossello campaigned for statehood as the best avenue to boost future growth for the island, which has $70 billion in debt, a 45 percent poverty rate, woefully underperforming schools and near-insolvent pension and health systems.
Puerto Rico will likely need to fund government operations using sales-tax revenue claimed by warring factions of bondholders unless a legal dispute at the heart of the island’s bankruptcy is resolved by November, Bloomberg News reported on Saturday. The federal oversight board charged with restructuring Puerto Rico’s $74 billion debt asked a judge to let the board appoint two independent agents to help litigate a dispute over who owns cash collected by the government’s sales tax agency, known by its Spanish acronym Cofina. In court papers filed on Saturday morning, lawyers for the oversight board said those agents should take over the fight currently being waged between general-obligation bondholders and Cofina bondholders. The U.S. Bankruptcy Court in San Juan will decide who has control over $400 million of funds held by the sales-tax bond trustee. If the court rules that Puerto Rico doesn’t have claim to any sales-tax revenue, then the island will face “acute cash management issues” that may require it to borrow sales-tax revenue after Nov. 1 from the island’s sales-tax agency, the commonwealth said in the court documents. Read more.
Even before the U.S. territory filed for a tailor-made form of bankruptcy, the government spent as much as $154 million on financial consultants and lawyers as it negotiated with bondholders to cut its $74 billion debt, according to the terms in contracts provided by the island’s Office of the Comptroller. With creditors and Puerto Rico now squaring off in court, the fees will only grow, according to a Bloomberg News analysis. Puerto Rico’s May 3 bankruptcy, allowed under a unique process created by a federal rescue law enacted last year, is the largest ever for a U.S. government, promising significant paydays for lawyers and advisers clashing over who has a higher claim on the island’s diminished cash. The amount the government spent during its slow-motion collapse approached the $180 million shelled out in Detroit’s record bankruptcy — roughly equivalent to what it costs to cover the annual pensions of 11,000 Puerto Rico retirees. Some of the spending on consultants has borne fruit: the Puerto Rico Electric Power Authority, known as PREPA, and the Government Development Bank have both reached out-of-court settlements with bondholders to reduce what’s owed. The power company’s deal struck this year, which amended an earlier one, promises to cut its debt-service costs by about $2.2 billion from 2018 to 2022 if it’s executed. Puerto Rico was less successful with owners of other bonds, ultimately wagering on a better outcome from bankruptcy. Read more.
A lawyer for Puerto Rico's financial oversight panel on Monday said the bankrupt island's highway authority could run out of cash if it continues to pay all its debt, and signaled big repayment cuts for the authority's creditors, Reuters reported yesterday. Attorney Martin Bienenstock made the comments at a court hearing related to Puerto Rico's bankruptcy, at which a creditor of the Highway and Transportation Authority (HTA) sought to block the island's use of "clawbacks" — diverting toll revenue out of HTA's coffers. HTA bondholders have a lien on that revenue, and want to keep getting paid. But "once they take the money, we have no money to operate the highway authority," Bienenstock said yesterday in a Manhattan courtroom. U.S. District Judge Laura Taylor Swain scheduled a trial on the dispute for Aug. 8, in the Puerto Rican capital San Juan. Read more.
The bankruptcy of Puerto Rico, the culmination of years of economic decline, has accelerated an exodus of the population that’s adding to the island’s economic misery, Bloomberg News reported on Friday. The island has lost 2 percent of its people in each of the past three years. A comparable departure from the 50 states would mean 18 million people moving out since 2013. About 400,000 fewer Puerto Ricans live on an island of 3.4 million today compared with a decade ago, when its economy began contracting. The departures have trapped Puerto Rico in a downward financial spiral. A grinding recession, with joblessness at 11.5 percent, and $74 billion mountain of debt that pushed the island to insolvency has made collecting taxes key to an economic rebound. At the same time, more Puerto Ricans from all walks of life are moving away to better their lives, meaning government revenue is dwindling. Read more.
Senior creditors of Puerto Rican debt backed by the island's sales tax revenues are seeking to depose government officials over what they see as conflicts of interest in how the U.S. territory manages its bond payments, Reuters reported yesterday. As Puerto Rico sorts its way through the biggest bankruptcy in U.S. municipal history with $70 billion in bond debt and another $49 billion in pension liabilities, several creditor groups are litigating feverishly over who gets paid first. This group, holding some $2.5 billion in senior debt issued by Puerto Rico's sales tax authority, COFINA, asked a judge yesterday to let them depose officials in charge of Puerto Rico's fiscal agency, known by its acronym AAFAF. Court papers filed by the senior creditor group, which includes Cyrus Capital Partners and Tilden Park Capital Management, said AAFAF "suffers from irreconcilable conflicts of interest" because it acts on behalf of both COFINA and Puerto Rico's central government — separate debt issuers whose creditors are fighting over the same money. Read more.
Puerto Rico Governor Ricardo Rosselló released a $9.6 billion spending plan that devotes about a fifth of the budget to covering government workers’ pensions because the island’s retirement funds are poised to run out of money as soon as July, Bloomberg News reported yesterday. It’s the U.S. territory’s first budget since a federal oversight board was given sweeping authority to review its spending under a U.S. rescue law enacted last year to help it deal with its escalating fiscal crisis. It’s also the first since the island resorted to bankruptcy-like proceedings this month, seeking to reduce its $74 billion debt. The budget largely adheres to the fiscal recovery plan approved by the oversight board in March, which promised deep haircuts for bondholders. It allocates about $400 million for principal and interest, a fraction of the $3.26 billion due in the fiscal year that begins July 1. With its retirement system rapidly going broke, Puerto Rico must also cover $2 billion of pension payments as they come due. Read more.
A federal judge yesterday ordered the trustee for Puerto Rico’s COFINA bonds not to make a $16 million payment due on June 1, allowing creditors to litigate competing claims to the money that could be central to how the bankrupt U.S. territory restructures debt, Reuters reported. U.S. District Judge Laura Taylor Swain made the ruling during a hearing in her Manhattan courtroom, putting a freeze on the payments while stakeholders hash out central disputes over who is to be paid first and from which revenue sources. Puerto Rico, with $70 billion in bond debt and another $49 billion in pension liabilities, is embarking on the biggest financial restructuring in U.S. municipal history. Sorting out obligations of the COFINA sales tax authority, which owes some $17 billion, is arguably the biggest task in the restructuring. Judge Swain's ruling granted a request by the COFINA trustee, Bank of New York Mellon, for "interpleader," a move authorizing the bank to hold onto the interest payment due on Thursday without fear of liability, while claims over the money are resolved. Judge Swain did not rule on the underlying claims, a process that could take months, but said "their existence makes it clear that interpleader is warranted." Read more.
