Puerto Rico, U.S. Treasury agree on super-priority loan terms

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U.S. Secretary of the Treasury Steven Mnuchin and Puerto Rico Gov. Ricardo Rosselló said they had reached a deal for a “super-lien” Community Disaster Loan.

Puerto Rico may borrow up to $4.7 billion if its cash balances fall below $1.1 billion, the governor said at a press conference in San Juan Thursday. The Treasury had previously set $800 million as the threshold.

The commonwealth’s central bank account had $1.45 billion as of March 9. The governor didn’t specify if the Treasury would only consider this account or also other accounts in determining the $1.1 billion level. The loan would be for operating expenses.

Hurricane Maria hit Puerto Rico on Sept. 20, 2017, wreaking widespread damage and reducing the Puerto Rico government’s revenue flow. The island government has complained that the loan to help the island recover was delayed and that the Treasury was being unreasonable on terms.

Rosselló said the loan will have a “super lien.”

“There will be a lien within the commonwealth but it won’t be a lien over the essential services,” he said. “Again, I think both of our visions are aligned. We both want the taxpayer to be protected, but we also want the U.S. citizen who lives in Puerto Rico to have guaranteed essential services. And both of those objectives were agreed upon.”

After Hurricane Maria hit Puerto Rico the governor said that the U.S. government frequently forgives these types of loans.

Mnuchin said the topic of loan forgiveness would be dealt with later “based on the facts and circumstances at the time.” He said if and when the topic came up, the Treasury would consult with the Federal Emergency Management Agency, Congressional leadership and the federal administration.

"It's not something we're going to do for the benefit of bondholders but it is something we would consider down the road for the benefit of the people of Puerto Rico," Mnuchin said.

Puerto Rico is in the midst of a Title III bankruptcy process for more than $50 billion of the island's $72 billion of public sector debt.

Both officials said that before Puerto Rico could draw on the loan, Puerto Rico’s legislature, Oversight Board, and Title III Judge Laura Taylor Swain would have to approve.

Puerto Rico would be allowed to draw upon the money repeatedly, as needed, the governor said. He pointed out that the U.S. Virgin Islands has already taken four draws totaling $200 million. The money will be available until March 2020.

The U.S. Treasury will be making loans available for up to $5 million to every Puerto Rico municipality. This would also draw upon the $4.7 billion total, which the Virgin Islands may also take additional loans on.

Any Treasury loans to the Puerto Rico Electric Power Authority, Aqueduct and Sewer Authority, or other government authorities will be made by way of loans to Puerto Rico's central government.

Mnuchin said the loan is only part of a federal aid package to Puerto Rico. FEMA is planning to make more than $30 billion available for rebuilding and the U.S. Department of Housing and Urban Development is considering grants more than $10 billion.

“There’s a lot of money to be allocated here and I think it is going to have an enormous impact on the economy here,” Mnuchin said. “I think we are well on the path to a recovery of the economy here.”

Mnuchin said he would be returning to Puerto Rico on a quarterly basis to meet with the governor, see progress, and examine the island’s economy.

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