The Puerto Rico Oversight Board and bondholders are clashing about cash balances available for paying central government bonds.
Puerto Rico's central government currently has $15.9 billion in cash, according to the board. The bondholders say this puts the government in a good position to stick to the debt payment plan announced in February. The board disagrees, and says the total payout has to be reduced by about a third.
The Puerto Rico Fiscal Agency Financial Advisory Authority released both side's positions to the MSRB's EMMA web site Saturday.
Three and a half years into the bankruptcy process, bondholders claim, “increased commonwealth [of Puerto Rico] cash balances and substantial savings on contractual debt service have not translated into increased cash available for creditors.”
The creditors said the ratio of the projected cash balance to budget spending is 108%, which is higher than the 42.4% average of the top 10 states with the highest debt service-to-own source revenue.
Developments over the past few months will result in “over $3.7 billion of additional cash available” compared with the board’s projections by the end of the fiscal year.
Bondholders also object to the board lifting to $13.8 billion in June 30 from $11.2 billion in June 30, 2019, the restricted portion of all of the commonwealth public entities (including those beyond the central government), while failing to provide clear justification for the restriction of $8.3 billion of this.
Additionally, they claim, the board has progressively and dramatically expanded the amount the central government needs for rainy day funds or working capital or other similar categories.
The bondholders complain the board’s Oct. 30 proposal to the bondholders reduces their treatment, even as the consideration for other groups has improved compared to the Feb. 9 Plan of Adjustment. For example, total central government consideration for bondholders has declined to $10.96 billion from $15.21 billion.
By contrast, the February POA mandated 8.5% cuts to monthly benefits for pensioners receiving more than $1,200 a month. The new proposal would cut 8.5% from the benefits exceeding $1,500 a month.
The bondholders also said that the board is allowing the local government to give employees Christmas bonuses and for Medicaid to be expanded to 200,000 more individuals through September 2021.
The board said of the $15.9 billion held by the central government $5.4 billion is restricted.
Of the remaining funds, the board expects to use about $6 billion for cash to creditors, $1.5 billion to restore payments to retirees who lost employee contributions in a government defined contribution plan, and about $650 million for unions, retirees, and other claims. The balance is for what it calls “minimum cash balances” for government operations and interim disaster funding.
The board said it reached a $2.5 billion minimum cash balance through adding three categories together. It assumed a $1.2 billion to $1.7 billion cash balance for normal government operations. It calculated $750 million as an interim fund for obligated projects unable to access Federal Emergency Management Agency advancements. Finally, it determined the central government will have to contribute $894 million toward the funding of the operations and maintenance agreement between the Puerto Rico Electric Power Authority and LUMA Energy.
Acts 3-2013 and 106-2017, the board said, cut pension benefits about 50% for average members of the Employees Retirement System since 2013.
The bondholders' estimates of $3.7 billion of excess money is wrong, according to the board, with COVID-19 and other problems making it hard to estimate revenues in the remainder of the fiscal year.
The board said that if one excludes certain categories of funds not present in other states, the ratio of money held to budget spending is 40% to 48%, which is comparable to the 10 states it has chosen to compare with.
