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Cossec Fiscal Plan Contemplates Total Bond Value Loss

By on February 18, 2017

SAN JUAN — The fiscal plan to ensure the solvency of the 117 savings and credit cooperatives contemplates different scenarios to address the particular situation of cuts or losses from its credits as part of Puerto Rico’s debt restructure under the Puerto Rico Oversight, Management, and Economic Stability Act.

The board of directors of the Cooperatives Supervision & Insurance Corp. (Cossec, by its Spanish acronym) approved the fiscal plan on Friday unanimously, four days after removing its executive director, Sergio Ortiz Quiñones, who was removed by Carlos Méndez.

In an interview with Caribbean Business, both Méndez and Cossec Board Chairwoman Ivelisse Torres refused to reveal details of the fiscal plan until it is presented before Governor Ricardo Rosselló and the Financial Supervision Board by the end of the month.

Carlos Méndez and Ivelisse Torres (CB Photo)

Carlos Méndez and Ivelisse Torres (CB Photo)

Puerto Rico’s savings and credit cooperatives have more than $1 billion invested in the island’s values, and $500 million in other investments that produce earnings, said Méndez. However, the sector is exposed to unrealized losses (that aren’t set in paper), of around $500 million.

Forty-six percent of invested values are frozen in the insolvent Government Development Bank (GDB), while the rest remain in other entities and corporations with financial problems, such as the Puerto Rico Electric Power Authority (Prepa), the Puerto Rico Aqueduct & Sewer Authority (Prasa), and the Sales Tax Financing Corp. (Cofina by its Spanish initials).

Méndez added that they included at least two scenarios to the original proposals in the fiscal plan, to deal with the crisis of bond non-payment from Promesa’s perspective, which establishes alternatives for the debt renegotiation or to file bankruptcy.

The officials said they are developing measures to address different scenarios that contemplate cuts ascending to 55% of bond values, their total loss, or non-payment.

See also: Appointment of Cossec President to be Investigated

The plan includes measures that ensure a capital cushion, as well as measures regarding liquidity and ensuring day-to-day capital fluctuation. 

“In the plan there are additional scenarios that hadn’t been contemplated initially, which ensure that the cooperative movement can retain its permanence and solidness… and there are elements of diversification,” said Torres.

For his part, Méndez stated that as to the GDB, which is where cooperatives face the largest loss, they are contemplating to deal with cooperatives’ bonds as if they were deposits, to ensure they have “a more privileged position” under Act 40-2006, which deals with the bank’s liquidation. He maintained that Cofina’s bond prices are above the 60 par value. In the case of Prepa and Prasa, their respective bond values are near the 60 par value.

Méndez clarified that all 117 cooperatives have investments in Puerto Rico, and others have diversified investments, as he emphasized that the $400 million unrealized loss has an amortization period of 15 years.

“The cooperatives also have interests in loans and other activities, which is why they receive less impact,” he said.

See also: Source: Cossec cannot disclose fiscal plan details under oversight board orders

However, in the worst-case scenario, losing 100% of bond value, a larger number of the 117 cooperatives would be affected.

On another hand, Torres sad that the fiscal plan included measures or recommendations from presidents of different cooperatives that are viable under Promesa, but he didn’t provide details.

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