Sunday, February 25, 2018

[Editorial] Fairy Tale Negotiations: In Puerto Rico’s Magic Kingdom

By on February 12, 2018

Editor’s note: The following editorial originally appeared in the Feb. 8-14 print edition of Caribbean Business.

Puerto Rico in the times after Maria, fraught by trial and tribulation, made mothers of invention of us all as we muddled toward frugality—not one industry has been spared. The hardship forced us all to greatly appreciate so many things that were once taken for granted. Standing in gas lines for hours on end, crisscrossing a metropolis pock-marked by dark intersections has that effect on the immediate subconscious. Thus, as life in the greater metropolitan area slowly returned to “a new normal,” I found great solace in riding the Tren Urbano to our media company’s headquarters in Hato Rey. No gas, no traffic—three bucks, and off we go.

During the first jaunt to Hato Rey’s Roosevelt station in the heart of Puerto Rico’s financial district, the stretches of the ride that hovered above Puerto Rico’s threadbare landscape took me back in time to rides on Walt Disney World’s Monorail—only the attractions on our tattered horizon were not quite as exciting. Yes, one could see “Tomorrowland” in urbanizations—as in: “you will have your electricity…tomorrow”—land.

To be honest, much like Disney where you have rides sponsored by such stalwarts of corporate Americana as General Electric and Monsanto—you could very well see some of Puerto Rico’s main attractions—El Choliseo, the Puerto Rico Convention Center, the Puerto Rico Art Museum, waterfront properties and a parking lot or two—pawned off to creditors who are chomping at the bit, now that debt is back in full play after a brief stalemate in the months after Maria.

Puerto Rico is trying mightily to rub two nickels together, but some representatives in U.S. Congress, who seemingly lost their appetite for charity, are concerned that their taxpayer dollars might not be spent prudently by the Rosselló administration. Without fed funds to recover from the onslaught, Puerto Rico’s economy is forecast to stagnate at a double-digit clip in 2018, which opens the possibility for a fire sale of assets, as happened in Detroit.

Yes, under the brutal diagnosis of Detroit Emergency Manager Kevyn Orr, in bankruptcy proceedings heard by Federal Judge Steven Rhodes, creditors got in line for bitter medicine in what some have called a Kangaroo Court—creditor perspectives were colored by tight haircuts and the assets they might have obtained instead.

In Detroit, for instance, the city gave monoline bond insurer FGIC the old U.S. Arena, which sat on a prime waterfront location. The Arena has since been imploded to make room for FGIC’s state-of-art high rise. Monoline bond insurer Syncora, which also has a horse in Puerto Rico’s Promesa sweepstakes—together they are on the hook for some $2.2 billion in Puerto Rico debt—got its cut in the Detroit Tradeout Jamboree. The financial guaranty institution came away with the Detroit-Windsor Tunnel and garages in midtown next to the sportsplex and development rights along some pricey waterfront spots in the city. We have asked this question before: What will Puerto Rico barter away when National MBIA, Assured and Ambac come calling.

In Puerto Rico’s debt negotiations—or lack thereof—there’s discourse that hints things could be headed for a Motown twist. Phrases such as “the debt is not payable” and “perhaps Puerto Rico should have its debt pardoned,” could be the precursors of a fire sale of assets. Under that scenario, it isn’t hard to imagine a thoroughfare’s toll being handed over to a major creditor. Who could forget that Ambac is fighting mightily for toll revenue clawed back in 2016? The bond insurance company is on the hook for some $493 million in Highways & Transportation Authority debt.

Can’t you just picture it: Instead of “vamos por la sesenta y seis”—changed to “vamos por la Ambac?”

If it can happen in Detroit—it can happen in Puerto Rico; ojo.

Then there’s the crown jewel—Puerto Rico Electric Power Authority. The bankrupt utility is about to embark on a transformation that raises far too many concerns. Front and center, is the scuttling of a regulatory framework.

Thus, the question begs: “Who will watch over the transformation of Prepa to make certain creditors do not gouge a business community sorely in need of reliable electricity at affordable rates.

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