Tuesday, November 21, 2017

Government to seek yet another extension to Promesa’s stay

By on March 1, 2017

SAN JUAN – The government’s representative before the financial control board, Elías Sánchez, will send a letter Thursday requesting the fiscal entity to ask Congress to amend the federal Promesa law to extend the stay on litigation until Dec. 31.

The official made the announcement after reviewing Gov. Ricardo Rosselló’s fiscal plan, which reveals that the administration will seek an extension of Promesa’s stay, which expires in early May. What’s more, Sánchez admitted that such an extension has not been discussed with creditor groups.

The stay’s validity was already extended by the board at the beginning of the year, days before its initial expiration date, Feb. 15. However, Promesa allowed the fiscal board to grant such extension, but it doesn’t provide for additional ones.

Elías Sánchez (Felipe Torres/CB)

Elías Sánchez (Felipe Torres/CB)

“When Promesa was conceptualized there was a reason for the stay, to provide room for consensual negotiations under Title VI,” Sánchez said. The process to address Puerto Rico’s fiscal crisis hadn’t begun until January and six months of the stay were wasted, he added. Sánchez also said Promesa allows the board to offer recommendations to Congress regarding amendments to the law that would allow it to exercise its role.

“We want to comply with consensual negotiations [and] the law’s purpose,” he noted.

If the amendment were approved, the government would avoid a debt restructuring process under Title III to take place as early as May, stressed Sánchez, a process that he called as “freefall Title III.” He noted that extending Promesa’s stay would allow the government to present audited statements, which it expects to have ready by September, and have a fiscal plan with “real numbers” and negotiations with creditors based on accurate data.

Sánchez also clarified that although there are active cases in federal court, such as the lawsuit filed by a group of general obligation (GO) creditors, these do not involve a collection action against the government. Even though the Lex Claims case hasn’t been stayed under Promesa, he indicated it is a litigation between GO bondholders and the Sales Tax Financing Corp. (Cofina by its Spanish acronym) creditors, while there hasn’t been yet a collection action not stayed under Promesa.

Sánchez also avoided commenting on the GO-Cofina legal dispute because the central government will have to eventually present its position on the matter.

Meanwhile, the stay’s expiration, without having reached agreements with the various creditor groups, could leave the government in a position in which it would have to immediately cover the defaults it has been carrying since early 2016. This, in turn, would represent a possible government shutdown, since it would leave a cash-flow shortfall of more than $2 billion. As the board has hinted, this scenario could result in the possible filing of a process under Title III for the government of Puerto Rico.

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