Puerto Rico governor complains U.S. Treasury is blocking emergency loan

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Puerto Rico Gov. Ricardo Rosselló is seeking help from Congressional leaders to deal with the U.S. Treasury, which he says is blocking a hurricane disaster loan.

In November Congress and President Trump approved a $4.7 billion Community Disaster Loan for Puerto Rico to help it in the aftermath of Hurricane Maria. The money was for the central government, its authorities, and its municipalities.

More than five months after Maria Puerto Rico has received none of this money.

According to a letter Rosselló sent to Congress on Monday, the Treasury on Feb. 20 released the terms of a loan that it said would be $2.065 billion. The proposal “imposed restrictions seemingly designed to make it extremely difficult for Puerto Rico to access these funds when it needs federal assistance the most.”

The governor claims that in a conference call on Feb. 21 a Treasury representative said it “does not intend to forgive the loan.” In the past the governor has said that the U.S. government has forgiven such loans 90% of the time.

The governor quotes language from the CDL law that says that the federal government has the capacity to forgive the loans.

“As far as paying back federal loans, I think most bondholders recognize that federal loans usually take a priority over other debts of an entity,” said Howard Cure, Evercore director of municipal research. “Transportation programs such as Transportation Infrastructure Financing Innovation Act usually require these loans to be repaid prior to other debt obligations.”

Puerto Rico is in the midst of bond bankruptcy, with the central government and entities closely tied to it owing more than $50 billion in bond debt.

The governor said the Treasury is seeking five conditions be put on the loan: “1. Any loan terms must provide for maximum protection for the United States taxpayers; 2. Any loan terms must account for the ‘indefinite and unknown’ future of [Puerto Rico Electric Power Authority]; 3. Any loan terms must include detailed reporting and protective covenants; 4. The U.S. Treasury believes the commonwealth has sufficient liquidity to repay and the United States taxpayers should not accrue risk of a loan; and 5. Any loan terms must be consistent with customary terms provided to debtor-in-possession lenders in cases filed under chapter 11 of the Bankruptcy Code.”

Concerning the last requirement, Rosselló complained that “customary debtor-in-possession loans in Chapter 11 business reorganizations are very often tight and restricted in nature and completely antithetical to the policy concerns under the CDL program, which is aimed to provide the maximum level of flexibility to maintain essential services.”

The Treasury is insisting that the Puerto Rico Aqueduct and Sewer Authority enter Title III bankruptcy so that its loan to PRASA could have a priming lien. The governor says PRASA is currently in a Title VI consensual restructuring process and Title III would be costly and unnecessary.

“There has been for some time now a question of how much is needed in federal money by Puerto Rico,” Cure said. “In this case, I think Puerto Rico is a victim of their own, badly managed, accounting system.”

The governor sent his letter to Senate Majority Leader Mitch McConnell, Senate Minority Leader Charles Schumer, House of Representatives Majority Leader Paul Ryan, and House of Representatives Minority Leader Nancy Pelosi.

The U.S. Treasury didn’t immediately respond to a request for a comment.

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PROMESA Commonwealth of Puerto Rico Puerto Rico Sales Tax Financing Corp (COFINA) Puerto Rico Electric Power Authority Puerto Rico Highway & Transportation Authority Puerto Rico Aqueduct & Sewer Authority Puerto Rico Washington DC