Puerto Rico’s central government has 47% more than anticipated

Puerto Rico’s central government had $2.2 billion more than projected in its central government account as of May 17, raising hope that bondholder losses may be mitigated.

There was $6.88 billion in the account, compared to a projection of $4.67 billion found in its Liquidity Plan, according to the Treasury Single Account FY2019 Cash Flow report for May 17 from the Puerto Rico Department of Treasury.

Puerto Rico bank account balances on April 20 2019

The biggest cause for the account’s greater-than-expected size is that Puerto Rico Sales Tax Financing Corp. (COFINA) plan of adjustment settlement amounts entered the account before the Liquidity Plan’s projections. However, even if one were to subtract the $412 million for this class, the central government account would still be 38.6% ahead of the Liquidity Plan.

In addition to the early arrival of the COFINA money, causes for the surplus in the central government account included strong General Fund revenue, on track spending, a temporary surplus of federal funds received in advance of disbursement, and enhanced federal Medicaid support for the Puerto Rico Health Insurance Administration.

In a separate release on Monday the Puerto Rico Fiscal Agency and Financial Advisory Authority said Puerto Rico and its instrumentalities had a total of $13.74 billion in their bank accounts as of April 30. That was 9.3% more than a month earlier. The bulk of that increase came in a greater than $1 billion increase in the size of the central government account, called the Treasury Single Account.

“The growth in Puerto Rico’s bank balances should be positive for everyone including legacy bondholders, pensioners, and Puerto Ricans who depend on their government to provide public services,” said John Ceffalio, AllianceBernstein municipal credit analyst.

When one is not paying bond debt the amount of money one holds will increase, said Chapman Strategic Advisors Managing Director James Spiotto.

Spiotto said some of the $13.74 billion was spoken for and thus unavailable for bondholders. However, some of it was unspoken for and was growing. The more of this there is, the more people will seek it.

The $13.74 billion total consisted of $6.76 billion for the Treasury Single Account, $2.77 billion for public corporations and legally separate entities, $764 million of pension related funds, $1.78 billion for non-Treasury Single Account central government funds, and $1.66 billion for restricted accounts and accounts subject to the Title III bankruptcy proceedings.

The non-TSA central government holdings include $630 million at the U.S. Treasury pertaining to the Puerto Rico Unemployment Trust Fund, $474 million federal funds administered by the Public Housing Authority, and $184 million of lottery related funds.

The Puerto Rico Oversight Board and representatives of general obligation bondholders are in the process of negotiating a plan of adjustment for the GO bonds. The GO holders will focus on the amount in the Treasury Single Account, Spiotto said.

FAFAA’s bank account balance report excluded holdings by municipalities, the legislative branch, judicial branch, Government Development Bank, and some investment accounts.

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