Friday, September 22, 2017

[Editorial] No Triple Crown in Promesa



By on June 22, 2017

As the Promesa Sweepstakes hits its next quarter poll—mandating a structurally balanced budget prior to June 30—House Speaker Paul Ryan (R-Wis.) and House Natural Resources Committee Chairman Rob Bishop (R-Utah), have seen their horse, the Financial Oversight & Management Board (FOMB), stumble on the stretch run and they are none too pleased.

The most recent hitch in the supposed thoroughbred’s giddy up—the FOMB jockey unexpectedly pulling back on the reigns of a restructuring support agreement (RSA) struck with creditors of the Puerto Rico Electric Power Authority (Prepa)—had nothing to do with the budget charade.

The GOP congressional leadership politically bankrolled Promesa with the implicit promise to hedge funds that possess Prepa debt that the RSA was as good as done—but the elephants on Capitol Hill were not expecting the FOMB’s reluctance to certify the Prepa deal. As a result, sources say Congress is receiving the full weight and pressure of Wall Street’s lobbying efforts on the matter. This Promesa came with a little sorpresa.

In the run-up to passing Promesa legislation last summer, Bishop attempted to codify automatic passage of the Prepa deal by inserting language—“by operation of law,” which would have made the RSA an iron-clad prearranged deal the moment the President signed the law. Push back by Democrats forced Bishop’s team—headed by staff director Bill Cooper—to soften the language. That self-evident intent is contained in Bishop’s recent missive to FOMB Chairman José Carrion III.

Bishop explains that “in drafting provisions of Promesa, Congress intended the protection and preservation of any consensually negotiated, voluntary agreements prior to the enactment of Promesa.” He goes on: “The Prepa RSA is the only such agreement. Therefore, the passage of Promesa obviated the need for any substantive action or oversight of the RSA by the Oversight Board.”

House Natural Resources Committee Chairman Rob Bishop, R-Utah, left, joined at right by Rep. Raul M. Grijalva, D-Ariz., go before the House Rules Committee to prepare a bill that would create a financial control board for Puerto Rico on June 8, 2016. (AP Photo/J. Scott Applewhite)

But Bishop was not counting on Gov. Ricardo Rosselló’s administration taking another crack at the deal. The governor, rightfully, believed he could get concessions that would result in better rates for Puerto Rico’s people and his legal advisers at Dentons were insistent on driving that discourse. Rosselló’s restructuring brigades kept a 15% haircut for bondholders, but extended maturities on the deal by four years, from 2043 to 2047—all told, they allegedly saved some $2.2 billion in debt servicing over the next five years.

By retooling the Prepa deal, many legal minds are arguing that the RSA is not the same conforming deal protected by Promesa’s Section 104(i)(3). Bishop insists that while Section 207 does authorize a review of the issuance of new debt, it does not allow for the review of debt that was preapproved by the statute.

At this writing, some of the financial newspapers are reporting that the Prepa RSA is showing signs of unraveling because of dissent within the FOMB regarding the prudence of the deal for the people of Puerto Rico. The naysayers fear that exorbitant electricity rates would further cripple Puerto Rico’s economy five years afield when tariffs soar if petrol prices rise and the utility’s client base continues to shrink.

Some observers of the process hint there is still room for consensus on the Prepa deal. This newspaper’s sources on Wall Street have let on that they believe the complexities of these negotiations and the sticking points therein will lead to another extension of the June 28 deadline in a deal that has more blown deadlines than procrastinating college freshmen turning in first-time term papers.

If there can be some consensus and more money saved for the people of Puerto Rico—lower rates assured for a longer time period—this would be a good thing. Still more important, Puerto Rico’s bankrupt utility needs an Integrated Resources Plan that can overhaul our energy infrastructure and this is contingent on the RSA.

Puerto Rico should not waste the opportunity to achieve consensus on a deal that is such an important precursor to the overhaul of a power infrastructure so essential to charting a course back to sustainable economic development.

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