[Editorial] Off With Our Heads
During the midyear meeting of the Associated General Contractors Puerto Rico Chapter held last week at the Sofitel Hotel in Washington, D.C., restructuring truths were revealed in fire and brimstone rhetoric delivered from the bully pulpit by the former emergency manager for the city of Detroit, Kevyn Orr.
The bottom line—there will be shared pain and nobody will like it.
In a very matter-of-fact fashion, Orr shared his three stages of debt restructuring—initiation, a defined plan and an exit strategy—a 12-step program with haircuts for all the people who are now paying for political addiction to debt that goes back a generation. Orr’s presentation was not “A Night at the Improv”; his 30 years of experience with such high-profile cases as Chrysler’s restructuring and the revitalization of Detroit inform a perspective that is brutally honest.
In his role as the fiscal physician for Detroit, Orr helped to restructure some $18 billion in debt, of which some $6.2 billion was in retiree healthcare costs. In the process, Detroit cut overall debt by $7 billion and managed to implement a $1.7 billion revitalization plan for city services and operations.
Here’s what Puerto Rico should expect: an initial phase of eye gouging— picada de ojos in local wrestling terminology. Need we say the GO v. Cofina brouhaha will be at the top of the marquee in a pay-per-view event? Next comes outlining a plan that should lead to consensual deals, and then an exit strategy that begins to bring economic growth at some point beyond year five of the apocalypse.
Orr was quick to point out that it is important to keep civil unrest at bay so that the value proposition remains attractive. He believes that Puerto Rico has a tremendous value proposition—an otherworldly rainforest, beautiful golf courses and waterfront property that rivals some of the best locations in the world. This is important. Here’s why.
When you do not have money, there are assets that you have to negotiate away. In Detroit, for instance, the city government gave monoline bond insurer FGIC the old U.S. Arena, which sits on a prime waterfront location. When the Arena is torn down this year, FGIC will develop a high rise. Monoline bond insurer Syncora also fared rather well in the barter jamboree. The financial guarantee institution came away with the Detroit-Windsor Tunnel and key garages in midtown next to the sportsplex and development rights at some key waterfront spots in the city. What will Puerto Rico barter away when National MBIA, Assured and Ambac come calling?
When he was asked what he would do with Puerto Rico, Orr explained that he would trace a timeline and ruthlessly keep it; he would identify a person who was obstructing the process and make an example of them, so that people realize that this is very serious.
Orr sees a very good executive director for Puerto Rico’s oversight board in Natalie Jaresko—who will she identify for “public execution”—a mayor, a lawmaker?
Orr believes that Puerto Rico could be back on a path to growth in two to five years—“if we don’t accomplish that, something is wrong.” Puerto Rico has a chance to chart a path to growth but has instilled some hesitance in capital markets uncertain of the decisions that will be taken during this initial phase of inevitable pain.
A key case in point was raised during a panel discussion on Title V of Promesa when AGC Puerto Rico President Francisco Díaz Masso asked what would be the catalyst that would lead investors to believe it is time to invest in critical infrastructure projects.
The response “we need confidence that the government is not throwing money into an uncertain legal situation,” indicates we are not there yet. It will take more than charade hearings on infrastructure development chaired by the Iron Maiden to put this Humpty-Dumpty economy back together again.