[Editorial] When Promesa Becomes Sorpresa
Life in these mambo tropics during the times of Promesa promises to be for adults only. Mileposts are coming at the Financial Oversight & Management Board at breakneck speed and the Formula I racecar they are piloting has yet to hire key drivers who can steer Puerto Rico on tight turns.
The control board has already closed the requests for proposals from firms filing to become the financial advisers. That process is again raising concern from creditors and Republican leadership on Capitol Hill because Centerview Partners, a firm founded by Blair Efron, is reportedly high atop the shortlist. Efron is good friends with Antonio Weiss, who has been U.S. Treasury’s point man on Puerto Rico’s debt crisis. So, the boys on Wall Street are concerned that a Centerview pick, along with the selection of Proskauer Rose as one of the firms selected as outside counsel, would have advisers calling for massive haircuts, thus putting the final nail in the coffin for Puerto Rico’s access to the credit markets.
In a wide-ranging interview that publishes in full next week, Gov. Alejandro García Padilla told this newspaper that U.S. Treasury Secretary Jacob Lew, Weiss and Kent Hiteshew, the director of the Office of State & Local Finance at the U.S. Treasury, were fundamentally important in driving the discourse that Puerto Rico was suffering through a humanitarian crisis as a strategy to pass the Puerto Rico Oversight, Management & Economic Stability Act (Promesa). The philosophy underpinning that strategy is to restructure Puerto Rico’s debt at all costs by going straight to Title III.
The big boys on Wall Street see the control board acting in a misguided fashion in allowing members of the U.S. Treasury tied to the Obama administration to ensconce themselves in Puerto Rico’s restructuring process. If you want to scare the bejesus out of creditors, you hire Proskauer Rose, whose partner Martin Bienenstock was responsible for writing the language in the Debt Enforcement & Recovery Act, a law intended to provide orderly restructuring and access to capital that was deemed unenforceable by the U.S. District Court of Puerto Rico and U.S. Court of Appeals for the First Circuit in Boston.
After that first hairpin turn, the board is on a straightaway, waiting for the amendments to the Fiscal & Economic Growth plan that the governor has already said he will not submit before they can take the wheel. After Dec. 15, the control board takes over the process to make amendments prior to certifying the fiscal plan by Jan. 31.
One high-level source on Capitol Hill told this newspaper that House Speaker Paul Ryan was none too pleased because the board was allowing members of the U.S. Treasury tied to the Obama administration to lay out a roadmap for restructuring that is exactly the opposite of what the GOP had hoped for—to use Title II (for transparency) and Title VI (to bind holdouts).
The conventional wisdom on the Hill was that Promesa would provide a mechanism for Puerto Rico to restructure its massive debt that has a schedule of payments—“Maturity Walls” that tower ominously in February and July. Few are wiser for wear on Capitol Hill. Two high-level advisers on both sides of the aisle told Caribbean Business that aside from Ryan’s concerns, members of Congress are largely under the impression that they had already dealt with “the Puerto Rico problem.” Promesa? No, sorpresa.
Indeed, there is a ton of work to be done. One case in point is the lack of knowledge pertaining to Puerto Rico by other key players involved in the process. Such is the ambivalence toward Puerto Rico that Heidrick & Struggles, the firm tapped to recruit the executive director, revitalization coordinator and general counsel—all key posts for the Promesa board—recently contacted a high-level adviser on the Hill tied to the GOP for him to explain how Promesa works. ¿En serio?