Trump's tweet on Puerto Rico has not sidetracked its bankruptcy reorganization

WASHINGTON — A senior official of Puerto Rico wants to make it clear that the commonwealth has not and will not intermingle federal disaster aid with debt payments to the island’s bondholders.

Christian Sobrino Vega, the commonwealth’s representative to the Puerto Rico Financial Oversight and Management Board, made that clear in an interview with The Bond Buyer during a visit to Washington in which he also spoke about the progress being made in the government's bankruptcy reorganization.

Sobrino-Christian

“The government of Puerto Rico is not seeking nor will it ever seek to use federal funds that pay for the recovery or any other purpose to pay bondholders for obligations that are not related to the federal program for which those funds are being provided,” said Sobrino Vega. “Period. Hard stop. We will never do that. We are good stewards of the federal funds that that U.S. taxpayers provide Puerto Rico.”

Puerto Rico’s top officials already had their hands full with a bankruptcy restructuring and reconstruction from last year’s hurricanes when President Trump accused them late last month of using federal disaster relief funds to repay bondholders.

The Oct. 23 tweet said, "The people of Puerto Rico are wonderful but the inept politicians are trying to use the massive and ridiculously high amounts of hurricane/disaster funding to pay off other obligations. The U.S. will NOT bail out long outstanding & unpaid obligations with hurricane relief money!"

Gov. Ricardo Rossello quickly responded by agreeing with Trump and using the media attention given to the president’s comments to blame a federal oversight board that has forecast budget surpluses for the commonwealth as a result of federal disaster aid.

But Rossello’s response did not directly address Trump’s accusation, although media accounts pointed out the inaccuracy of the president’s claim.

Sobrino Vega, who was in Washington to meet with Trump administration officials on a wide range of topics, said the commonwealth is less optimistic about its short-term economic growth but more optimistic about its long-term economic future than some forecasts show.

Sobrino Vega said the tweets by Trump apparently referred to the PROMESA board’s “certified fiscal plan that projected a very large government surplus and the increase in revenues is driven by a front-loading of federal recovery dollars.”

“I think it’s unfortunate that the action of the oversight board in certifying the plan sent the wrong message to Washington and to the White House,” he said. “Ultimately, I think the president’s remarks were not directed to the elected government of Puerto Rico.”

The Puerto Rico Oversight Board is making a mistake in its economic forecast by not taking into account the length of time it will take for federal disaster aid to be spent, according to Sobrino Vega.

The Center for a New Economy, a nonpartisan, San Juan-based think tank, agrees the oversight board has overestimated the short-term economic bounce from federal spending on disaster recovery.

Federal spending has been slower than in other areas also struck by hurricanes in 2017, the center said in a report last month. That will be especially true of funding that will come through the U.S. Department of Housing and Urban Development because it will flow to Puerto Rico’s housing agency before it is spent on projects, said Sergio Marxuach, the center’s public policy director.

Only 17% of the federal funds designated for individuals have been spent compared for 32% for Hurricane Irma and 47% for Hurricane Harvey, according to a U.S. Government Accountability Office report released in September.

Meanwhile, the commonwealth is making progress is its bankruptcy reorganization.

The Puerto Rico Infrastructure Financing Authority and Puerto Rico Industrial Development Company are next in line for debt restructuring, said Sobrino Vega.

The debt restructuring for two agencies, commonly referred to as PRIFA and PRIDCO, are being negotiated separately from other parts of the restructuring.
Under the 2016 Puerto Rico Oversight Management and Economic Stability Act known as PROMESA, “substantial consolidation” of the negotiation is prohibited, said Sobrino Vega.

“PROMESA specifically prohibits that action,” he said. “Under PROMESA and Title III we need to attend to every issuer as a standalone entity.”

The commonwealth’s Title III bankruptcy reorganization has moved forward in recent weeks.

A restructuring deal for Puerto Rico Sales Tax Financing Corp. (COFINA) bonds won conditional approval from unsecured creditors on Nov. 5.

The Official Committee of the Unsecured Creditors had veto powers over any COFINA deal, according to an August 2017 stipulation and order in the COFINA Title III bankruptcy.

The Plan of Adjustment filed Oct. 19 with the Title III Court covers the entire $17.6 billion in COFINA debt and represents 24% of Puerto Rico’s total bonded debt. It reduces COFINA debt by more than 32%, according to the oversight board. The agreement also provides Puerto Rico roughly $17.5 billion in debt service savings and enables “significant recovery” for the island’s local retail bondholders.

In addition, U.S. District Court Judge Laura Taylor Swain earlier this month gave approval to a plan to a restructuring for the former Government Development Bank that includes the write down of about $4 billion in debt after bondholders authorized the deal in September.

In another development, an ad hoc group holding billions of Puerto Rico-guaranteed bonds has formed with the goal of negotiating a comprehensive restructuring of the commonwealth’s debts. The Commonwealth Bondholder Group said Thursday that it has teamed up with Bonistas del Patio Inc., a nonprofit organization that advocates for the interests of on-island bondholders who hold in excess of $1 billion of debt issued or guaranteed by the Commonwealth.

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PROMESA Government finance Puerto Rico Sales Tax Financing Corp (COFINA) Washington DC Puerto Rico
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