Puerto Rico, Virgin Islands would get $4.9B loan as part of disaster relief package

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-WASHINGTON -- Puerto Rico and the U.S. Virgin Islands would share in a $4.9 billion low-interest federal loan to pay their territorial government bills after the end of the month as part of a $36.5 billion aid billion package.

Puerto Rico Gov. Ricardo Rosselló hailed the loan, which is expected to be voted on by the House Thursday and the Senate next week.

“The program will allow the island to have the liquidity it needs to meet the expenses of payroll and the response to Hurricane Maria’s effects,” Rosselló said. A spokesman for the Virgin Islands government said officials there are hoping the loan “will have very favorable terms.”

Puerto Rico faces a government shutdown at the end of the month without an infusion of cash, Raul Maldonado, the island’s treasury secretary, said last week.

Restoration of basic services remains incomplete in Puerto Rico three weeks after Hurricane Maria made landfall on the island Sept. 20 with nearly Category 5 winds, and dumped nearly 40 inches of rain.

About three weeks after Hurricane Maria hit Puerto Rico, only 11% of customers of the Puerto Rico Electric Power Authority have electrical service, according to staff at Puerto Rico’s governor’s office. However, 64% of Puerto Ricans have public water service. The staff report that 54% of cellular service has been restored.

The Puerto Rico Department of Public Safety reported Wednesday that there 44 deaths connected to Maria have been confirmed and another four deaths were under investigation.

The House Appropriations Committee announced the disaster aid package Tuesday night based on requests from the Trump administration that included the loan for Puerto Rico and the USVI.

“These funds are vital right now, in the near term, to get the aid where it is needed most,” said House Appropriations Committee Chairman Rodney Frelinghuysen, R-N.J.

The proposed loan through the Disaster Assistance Direct Loan Program provides flexibility for repayment. It allows the secretary of Homeland Security in consultation with the Treasury secretary to "determine the terms, conditions, eligible uses, and timing and amount of federal disbursements of loans issued to a territory or possession, and instrumentalities and local governments."

The new federal loan may be problematic for Puerto Rico’s bondholders, who were in the midst of the biggest municipal bond restructuring when the hurricanes hit. Puerto Rico bonds dropped to new lows in secondary market trading after Hurricane Maria.

“To the extent Puerto Rico is given access to a new borrowing vehicle … repayments to such will almost surely subordinate all outstanding commonwealth bonds, further diluting current bondholder recovery,” Municipal Market Analytics’ said in a Oct. 2 Outlook report on the potential impact of the storm on bondholders.

Puerto Rico’s Fiscal Agency and Financial Advisory Authority didn’t respond to an inquiry about how the federal loan might be paid back or how the new loan would affect the island government’s ability to repay existing debts.

Rosselló said at a press conference earlier this week that 92% of Community Development Loan Program loans have been forgiven in the past based on meeting certain metrics, according to Reorg Research.

Rosselló sent a letter to President Trump on Friday that cited “independent damage assessments in the range of $95 billion – approximately 150% of Puerto Rico’s’’ economy.

“Financial damages of this magnitude will subject Puerto Rico's central government, its instrumentalities, and municipal governments to unsustainable cash shortfalls,’’ Rossello wrote. “As a result, in addition to the immediate humanitarian crisis, Puerto Rico is on the brink of a massive liquidity crisis that will intensify in the immediate future.”

The letter did not request the loan, but did list $4.6 billion in federal emergency assistance.

The $36.5 billion in new federal disaster aid will be split among states and territories that sustained damage from hurricanes Harvey, Irma and Maria along with western states such as California that have been ravaged by wildfires.

The committee said the package includes $18.7 billion for the Federal Emergency Management Agency’s Disaster Relief Fund and $16 billion for debt relief for the National Flood Insurance Program which is needed to make claims payments to individuals.

There also is a provision to allow the Disaster Nutrition Assistance Program to give low-income residents of Puerto Rico the same emergency nutrition aid that other states have received after suffering hurricane damage.

The package also includes $576.5 million for operations to combat wildfires.

Frelinghuysen said he expected “more assistance will be required in the near future” for the recovery in Puerto Rico, the U.S. Virgin Islands, Texas and Florida.

He pledged his committee “will be vigilant in overseeing these funds and will continually monitor this crisis, and stands ready to provide the necessary funding to get these communities back on their feet.”

In his letter Friday, Rossello requested $3.2 billion in Community Development Block Grants, $500 million for the Community Disaster Loan Program and $500 million for a Social Services Block Grant. The island also requested $149 million from the federal Transportation Department’s Emergency Relief Program, $90 million through the Small Business Administration Disaster Loan Program, $83 million through the Agriculture Department’s Commodity Assistance Program and $78 million through the Department of Education’s program for state educational agencies/hurricane education recovery.

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Hurricane Maria Hurricane Harvey Hurricane Irma PROMESA Commonwealth of Puerto Rico Puerto Rico Employees Retirement System Puerto Rico Infrastructure Financial Authority Puerto Rico Public Finance Corporation Puerto Rico Public Buildings Authority Puerto Rico Highway & Transportation Authority Puerto Rico Sales Tax Financing Corp (COFINA) Government of the Virgin Islands Virgin Islands Public Finance Authority Puerto Rico Washington DC