12 Days of Christmas

BY PHILIPE SCHOENE ROURA, JUAN A. HERNANDEZ, DENNIS COSTA, LUIS J. VALENTIN, ROSARIO FAJARDO AND ISMAEL TORRES

“On the First day of Christmas, the Three Kings Gave to me…” One Lame Duck in a Palm Tree… • “On the Second day of Christmas, Puerto Rico Gave to me…” Two Political Primaries… • “On the Third day of Christmas, the Government Gave to me…” Three Nasty Clawbacks • “On the Fourth day of Christmas, the Creditors Gave to me…” Four Seething Monolines (the big Cuatro) • “On the Fifth day of Christmas, the Three Kings Gave to me…” Five Loyal Dissidents… • “On the Sixth day of Christmas, the GOP Gave to me…” Six Republican Windbags (Plus one?) • “On the Seventh day of Christmas, the Government Gave to me…” Seven-Figure Advisers • “On the Eighth day of Christmas, the Creditors Gave to me…” Eight Prepa Extensions… • “On the Ninth Day of Christmas, the Federal Authorities Gave to me…” Nine Indictments… (at Least) • “On the 10th day of Christmas, the Three Kings Gave to me…” 10 Seats A-Shifting… • “On the 11th day of Christmas, Legislators Gave to me…” An 11.5% Sales tax… • “On the 12th day of Christmas, the Three Kings Gave to me…” 12 Months ’til Exit…

 -And a Lame Duck in a Palm Tree

Day 1

“On the First day of Christmas, the Three Kings Gave to me…”

One Lame Duck in a Palm Tree…

After a first term of political setbacks, misfires and the all too often occasional blunder, Gov. Alejandro García Padilla decided not to seek re-election, convinced that if he had opted to stay the course, he would have been responsible for single-handedly driving the island’s economy into the ground and converting several thousands of his own populares into PPT (Partido del Pueblo Trabajador) voters.

So, after consulting with his battle-savvy political advisers—namely Víctor Suárez, Jorge Colberg and Jesús Manuel Ortiz, whose combined political expertise has been defined as “a riddle wrapped in a mystery inside an enigma”—García Padilla realized (probably sometime last summer) that it would be best for both the economy and himself (not the Popular Democratic Party), to make the announcement in the middle of the Christmas shopping craze. Of course, as expected, critics would denounce the timing and the language he used.

“What shopping craze? There was no Christmas bonus and even next year’s tax refunds are nowhere in sight,” some have said.

Always anticipating, the governor’s advisers counseled him to play a deaf ear to them. “Do what you always do,” they said, “of course, there’s no bonus, but they would have maxed out their credit cards anyway.”

But after a year of la crudita taxes 1(a), 1(b) and 1(c), sales-tax increase, overestimated revenues, retained tax returns and no Christmas bonuses, García Padilla is ready to end the year on a high note. After careful analysis—even though he has said it was absolutely important to have it…a matter of life or death—he won’t call an extraordinary session of the Legislature to approve the restructuring bill for the Puerto Rico Electric Power Authority. Forget that we are in the middle of Christmas, that lawmakers are frantically trying to file their candidacies for re-election or that the bill may not be approved at all, first he was going to call the special session, now he’s not.

Merry Christmas!

After a year of la crudita taxes 1(a), 1(b) and 1(c), sales tax increase, overestimated revenues, retained tax returns and no Christmas bonuses, Gov. Alejandro García Padilla is ready to end the year on a high note.

—JAH

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Day 2

“On the Second day of Christmas, Puerto Rico Gave to me…”

Two Political Primaries…

Just 24 hours after Gov. Alejandro García Padilla’s announcement that he wouldn’t seek re-election, ex-Secretary of State David Bernier came out of the cave and announced his gubernatorial candidacy for the Popular Democratic Party (PDP).

The announcement had the practical effect of canceling out other possible aspirations for governor in the PDP, such as the case with Senate President Eduardo Bhatia.

“We have the ballot squared away in terms of the governorship. We still have the one for resident commissioner pending,” said PDP Sen. Aníbal José Torres.

In the PDP, the names being mentioned for the Resident Commissioner post include Sen. Ángel Rosa and ex-Rep. and ex-PDP President Héctor Ferrer. While the PDP primaries for this post will be interesting, most of the focus will be the New Progressive Party (NPP).

Most observers are keeping their eyes on the NPP primaries, namely for La Fortaleza, with some political analysts saying that whoever wins these primaries will win the 2016 gubernatorial elections. Resident Commissioner Pedro Pierluisi and Ricardo Rosselló have made their candidacies for governor official, while ex-Senate President Thomas Rivera Schatz is expected to make his announcement to run for La Fortaleza in the coming days.

For the Resident Commissioner race in the NPP, ex-House Speaker Jenniffer González has made her candidacy official, while ex-San Juan Mayor Jorge Santini is considering aspiring to the post. Even ex-Gov. Carlos Romero Barceló half-jokingly hinted at his availability for that position.

At the end of the year, the political atmosphere in the NPP was uncertain because even though Pierluisi and Rosselló have turned their sights on the gubernatorial race, their troops have yet to be organized and they have yet to clash on positions regarding different issues, particularly how they will move the statehood cause forward and how they will manage Puerto Rico’s massive $70 billion public debt.

Make no mistake, the 2016 elections are going to be very interesting, to say the least.

Most observers are keeping their eyes on the NPP primaries, namely for La Fortaleza, with some political analysts saying that whoever wins these primaries will win the 2016 gubernatorial elections.

—IT and RF

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Day 3

“On the Third day of Christmas, the Government Gave to me…”

Three Nasty Clawbacks…

When the government of Puerto Rico was seeking a $2.95 billion bond deal earlier this year, a confluence of events impeded the deal, foremost among which was lack of investor confidence tied directly to nasty infighting between the executive branch and the Legislature. Like some kidney stone coming down the pike, the obstruction impeded passing a hike to the petroleum products tax known as la crudita that was to have guaranteed the bond issue. Back and forth, the legislators went on the issue adding language to the measure that bondholders demanded to make certain the revenue stream could guarantee payment. They wanted automatic triggers—spikes in the hike and interest-rate ceilings—to guarantee their investment. Even then, the capital markets were looking at the deal with skepticism because they knew the revenue stream could be subject to clawbacks.

“The uncertainty extended in part to what they call clawbacks, which is money the government can use if there is a gap in the general fund to repay the constitutional debt,” Government Development Bank President & Chairwoman Melba Acosta told Caribbean Business during an interview in April as the debt crisis was ramping up. “They saw la crudita as something that was clawbackable, so the bond deal supported by la crudita had to be put on hold.”

This became a self-fulfilling Yuletide prophecy when Puerto Rico CFO Acosta announced they would be using clawbacks to tap into la crudita revenue streams to make debt-service payments due on Highways & Transportation Authority, Infrastructure Authority and Metropolitan Bus Authority debt, among others.

The investment community is none too pleased. Leading the line of pouting creditors are monoline bond insurance companies that are on the hook for some $128 million due on Jan. 1, out of $302 million due for the Puerto Rico Electric Power Authority. “From our perspective, the clawback is a patent attempt to revise the provisions of the constitution and contracts without justification or the required process,” say CEOs in the bond insurance realm. The rogue Gov. Alejandro García Padilla is probably saying, “Bah humbug, me vale.”

The rogue Gov. Alejandro García Padilla is probably saying, “Bah humbug, me vale.”

—PSR

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Day 4

“On the Fourth day of Christmas, the Creditors Gave to me…”

Four Seething Monolines (the big Cuatro)…

If ever there is something so great about Puerto Rico’s never-ending Navidades, it must be our custom of parrandas—think of them as Christmas caroling on steroids. Here’s how it goes: a giant group of people descends upon your home armed with congas, cuatros, güiros and guitars yelling, “Asalto,” as in “Stick up!” Then they break into rousing aguinaldos, or Spanish Christmas carols.

Some of the greatest hits are Si no me dan de beber, lloro (If you don’t give me a drink, I’m gonna cry) and Mi burrito sabanero (My Sabanear donkey, or something to that effect), which has a great chorus that goes “Tuki tuki tuki tuki, tuki tuki tuki tá,” (like the red herring in financial printing).

From house to house, everyone goes, partying, eating and drinking until the crack of dawn, and then it is all lamentation the next day with plenty of moral hangovers—that’s when you drink so much that you regret every excess you have enjoyed throughout your life.

Something like the capital markets—first greed, then fear. Just ask the big four monoline bond insurers who are on the hook for nearly $16 billion in exposure to commonwealth debt.

The ones fearing the biggest pinch are Assured Guaranty, the Municipal Bond Insurance Association Inc.’s National Public Finance Guarantee, Ambac Assurance, Syncora Guarantee, which have a wide spectrum of Puerto Rico debt.

Ambac, which has some $4.2 billion of exposure on Puerto Rico debt, has to cover $11 million of the more than $100 million in Highways & Transportation Authority debt due on Jan. 1, 2016.

What is the monolines’ take on the commonwealth’s restructuring? “Si no me dan de beber, lloro.”

What is the monolines’ take on the commonwealth’s restructuring? “Si no me dan de beber, lloro.”

—PSR

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Day 5

“On the Fifth day of Christmas, the Three Kings Gave to me…”

Five Loyal Dissidents…

As he had repeatedly said, Gov. Alejandro García Padilla has had to deal not only with the New Progressive Party opposition, but also with the “loyal insensitivity and irresponsibility” (his words) of some of his fellow Popular Democratic Party members, namely Reps. Luis Raúl Torres, Luis Vega Ramos, Manuel Natal, Luisa “Piti” Gándara and Ángel Matos.

The “loyalist opposition,” as former Gov. Pedro Rosselló used to refer to such beloved characters during his term in office, has done everything within its power to “do the right thing,” sometimes even “with a little help from their friends” —the no less loyal mayors of San Juan, Comerío and San Germán. When the dissidents were in da house—including the late Carlos Vargas Ferrer, who is now in a higher realm due to his untimely passing—García Padilla was sure to have his hands full trying to explain why increasing the 7% sales & use tax to a 16% value-added tax (VAT) would be “a good thing” because most people would apparently not pay income taxes. What wasn’t to like?

The dissidents, with a little help from their friend, San Juan Mayor Carmen Yulín Cruz, said “the VAT is good for the government but bad for the people.” Everybody except the governor cheered for the dissidents.

So, García Padilla ended up signing a different bill that increased the sales tax anyway and kept income taxes in place. Of course, now that it is a well-known fact that the government has no cash to reimburse taxpayers for overpaying on their taxes, we all realize things could have been different.

That is why none of the five dissidents should expect a Christmas card from La Fortaleza this year.

And to quote from Seinfeld lore’s infamous Soup Nazi, “no asopao for you!”

—JAH

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Day 6

“On the Sixth day of Christmas, the GOP Gave to me…”

Six Republican Windbags (Plus one?)…

The Republican primary slate has been looking like an episode of “Game of Thrones,” with so many characters it’s sometimes difficult to keep track of them—and perhaps the same amount of backstabbing.

With the Republican-controlled Congress turning its back on Puerto Rico regarding any kind of bankruptcy protection or implementing a fiscal control board for the commonwealth, cynicism surrounding the 2016 U.S. presidential elections is arguably at an all-time high among Puerto Ricans.

That said, a look at six of the main Republican hopefuls is in order, starting with Donald Trump, who has ruffled feathers with a brand of ham-fisted populism worthy of “All the King’s Men.” With his remarks against women and Hispanics, Trump has earned the scorn of many, but perhaps his latest faux pas—a call to ban all Muslims from entering the U.S.—may prove to be his ultimate undoing.

Speaking of disapproval, Ted Cruz is perhaps the only person the Republicans abhor more than Trump, with party statesmen such as John McCain and John Boehner saying they just don’t like the man. Then there’s Marco Rubio, who in a seeming fit of cognitive dissonance, visited Puerto Rico in September looking for campaign donations, while simultaneously saying he disapproved of any moves to grant the island any bankruptcy protection.

New Jersey Gov. Chris Christie hasn’t been able to move past allegations surrounding the George Washington Bridge scandal, in which officers reportedly colluded to close lanes and create traffic jams for political reasons. Despite his family background, Jeb Bush has fared a bit better than most and has paid plenty of lip service to Latinos, yet his campaign has been anemic at best and his stock hasn’t risen much.

Finally, there’s retired neurosurgeon Ben Carson, whose ultra-conservative remarks regarding abortion, gun control and gay rights have made critics question the necessary intelligence to become a brain surgeon.

We have six windbags down, but there seems to be someone missing…. Oh, that’s right, Carly Fiorina. True, she may have brought HP to the brink of bankruptcy, but we won’t hold that against her-for now.

The Republican primary slate has been looking like an episode of “Game of Thrones,” with so many characters it’s sometimes difficult to keep track of them—and perhaps the same amount of backstabbing.

—DC

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Day 7

“On the Seventh day of Christmas, the Government Gave to me…”

Seven-Figure Advisers…

 On Rudolph and Ravitch; Dancer and Rhodes; Vixen and Millstein—Oh, what fun it is to ride on the commonwealth’s open sleigh. Although Gov. Alejandro García Padilla announced he wouldn’t be running for a second term, he abdicated the charge to which he was elected months ago in favor of very pricy bankruptcy lawyers and restructuring experts—many of whom make seven-figure salaries. And worth every penny.

After all, it isn’t easy hosting a dog and pony show with former International Monetary Fund Managing Director Anne Krueger—no relation to Freddy—but downright scary in both her stern delivery and the message to some 300 creditors who gathered at an investor conclave in New York last March. Just keeping a straight face during the sham conference to present Krueger’s disturbing caveat—“they just can’t pay you without suffering a slow death”—was worth a king’s ransom.

You could just see those fidgety creditors breaking out in a chorus of that Quiet Riot classic: “We’re not Gonna Take It” or better still, The Who’s rock anthem: “[We] won’t Get Fooled Again.” But those investors sat there and played along. As we said, the commonwealth’s restructuring brigades are worth millions.

Besides, what’s tens of millions of dollars to an island that is facing a debt-service payment schedule that climbs to $5 billion in 2016?

Just look at the pedigree—Jim Millstein, chairman & CEO of Millstein & Co. is a former chief restructuring officer (CRO) for the U.S. Treasury, who, along with Puerto Rico Electric Power Authority (Prepa) CRO Lisa Donahue, stand to receive a hefty bonus in the seven-figure range if they manage to successfully restructure Prepa’s debt.

Then there’s Steven Rhodes, the bankruptcy judge who presided over the reorganization of debt in Detroit and scared the living bejeezus out of creditors as he whistled the tune “If I had a hammer, I’d hammer in the morning,” during their depositions.

And last but not least, there’s Dick Ravitch, a former lieutenant governor of New York, who kicked off a press conference in La Fortaleza with the caveat, “I don’t work for anyone, I am here to help because I love Puerto Rico.” That is worth at least a glass of some homemade coquito.

Dick Ravitch kicked off a press conference in La Fortaleza with the caveat, “I don’t work for anyone, I am here to help because I love Puerto Rico.” That is worth at least a glass of some homemade coquito.

—PSR

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Day 8

“On the Eighth day of Christmas, the Creditors Gave to me…”

Eight Prepa Extensions…

The tune really goes “eight maids a-milking,” which is fine since they have been milking deadlines at the Puerto Rico Electric Power Authority (Prepa) all year long. The utility’s restructuring maids were able to get eight extensions, and then some, to the forbearance agreements that have kept the utility and its creditors out of the courts.

And just like Christmas in September, Prepa was finally able to reach deals with some of its creditor friends—a bondholder group, fuel-line lenders and the Government Development Bank—with a restructuring letter for Santa sent to the North Pole back in November.

The wish list includes a roughly $700 million reduction to the utility’s debt, modern privately run powerplants, the approval of the Prepa Revitalization Act and new debt, along with a new rate structure. To the tune of about $28 million, restructuring elves—and their advisers—have been working hard all year long to achieve every item on the list.

But the Grinch hasn’t stopped trying to steal Prepa’s Christmas, and the utility still has to make amends with some insurer friends to remain on the good side of Santa’s Naughty or Nice List. Zigzagging through negotiations with the clock about to hit the 18th deadline of the year, the utility was about to bring its bond insurers onboard their Santa’s wish list—the restructuring support agreement.

All insurers want for Christmas is less risk and to avoid a Prepa default, even if that means giving the utility short-term liquidity to keep it afloat. And despite all the fine print in the restructuring deal…“Oh, what fun it is to ride in a one horse open sleigh.”

There is nothing like some suspense heading into Christmas Eve, and as Caribbean Business was going to bed, it seemed Prepa and its creditors would get themselves a happy new deal—at least for now.

The tune really goes “eight maids a-milking,” which is fine since they have been milking deadlines at the Puerto Rico Electric Power Authority (Prepa) all year long.

—LJV

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 Day 9

“On the Ninth day of Christmas, the Federal Authorities Gave to me…”

Nine More Indictments… (at least)

“Tú eres la causante de las penas mías, y yo me moriría si algún día dejo de amarte.” (You are the cause of all my sorrows, and I would die if one day I was to stop loving you.)

This seems to be the traditional Christmas carol being hummed right now by some of the political leaders who are in the sights of federal authorities, linked to a government-corruption scheme regarding contracts with the Alejandro García Padilla administration.

The sorrowful tone is headed by House Speaker Jaime Perelló, whose close collaborator, House Administrator Xavier González Calderón, has been accused, along with Anaudi Hernández Pérez, an entrepreneur and friend of the governor.

As part of these unwanted Christmas gifts, Perelló had to appear for a second time before a federal Grand Jury that is investigating the alleged scheme. Many are wondering if this holiday will present those accused several years in jail if it is proven in court that they were indeed part of a corruption scheme that yielded them thousands of dollars in public funds.

Up to now, this federal parrandón navideño has given at least nine people (and counting) their unwanted holiday gifts.

While the feds are attached to the tradition of Santa Claus, it wouldn’t be surprising that Perelló and some of his other special assistants at the House, who are allegedly linked to this scandal, will receive their gifts closer to Three Kings Day, at the beginning of next year.

Curiously, the heat that is starting to be felt in Perelló’s kitchen is increasing fast, as the federal investigation continues to deepen regarding the alleged government corruption scheme, as many are wondering how much did Perelló know about a contract to provide telephone services to the House.

The not-so-wished-for gifts from the feds aren’t limited to employees and former employees of the House, but also to high-level officials at the Puerto Rico Aqueduct & Sewer Authority, La Fortaleza and other government agencies. n

Up to now, this federal parrandón navideño has given at least nine people (and counting) their unwanted holiday gifts.

—IT

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Day 10

“On the 10th day of Christmas, the Three Kings Gave to me…”

10 Seats A-Shifting…

Now that Gov. Alejandro García Padilla’s decision not to run for re-election has been announced, let the game begin! The musical chairs game, that is.

Well, truth be told, David Bernier jumped the gun last October by beating everyone (namely Senate President Eduardo Bhatia and possibly San Juan Mayor Carmen Yulín Cruz Soto) to the best chair: the governor’s, or the so-called hot seat. Of course, we can’t be so naïve as not to know there was a kind of pitcher-catcher agreement there.

And no sooner had the governor announced he wouldn’t run again, than Jorge Colberg (former secretary of Public Affairs and now the Popular Democratic Party’s secretary general) and Jesús Manuel Ortiz, who had been training along with Víctor Suárez (former chief of staff, now secretary of State) for the game, made their moves. As in any line of scrimmage, everybody went against everybody, but Suárez seems to have gotten the short end of the stick when he was left alone to play with himself.

The game now reaches the Legislative branch and even possibly the Judiciary. From La Fortaleza, Ortiz just announced he is eyeing an at-large seat of the possible six available in the House of Representatives. Getting one of the at-large seats is no easy feat, but with at least one representative setting his sights on a bench in the appellate court, another threatened by a federal grand jury and a third one hanging by a thread for being the rookie dissident, Ortiz could be thinking he’s got a 50-50 chance. The remaining two seats are up for grabs as far as Ortiz is concerned.

Meanwhile, in the Senate, and playing in stealth mode, Bhatia seems to be readying himself to exchange one presidential chair for a bench—Chief Justice Bhatia has a nice ring to it, doesn’t it?

In the end, who will be left standing come las octavitas is still anyone’s guess.

The game now reaches the Legislative branch and even possibly the Judiciary.

—JAH

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Day 11

“On the 11th day of Christmas, Legislators Gave to me…”

An 11.5% Sales tax…

Last July, the Puerto Rico Legislature increased the 7% sales & use tax (IVU by its Spanish acronym) to 11.5%, as part of a controversial tax-reform process the Alejandro García Padilla administration kicked off to shore up its rapidly depleting coffers.

This is just one of about $2 billion in new taxes that the government has implemented during the past few years, and detailing all of them would take roughly the space of half this newspaper. And the story isn’t over yet, with the IVU scheduled to become a value-added tax (VAT) on April 1 of next year, of all days.

When it comes to the 11.5% IVU, it delivers a special sting in consumers’ pockets, especially since it’s visible on any receipt. Now, customers may think twice before splurging on that 65-inch flatscreen TV; they may be thinking: “Sure, 7% represents an additional expense, but hey, it’s just a little bit more. But 11.5? Well, I don’t know…”

As a result, it has become increasingly tough for Puerto Rico’s business sector to hold up its end of the bargain in propping up the island’s economy and creating much-needed jobs. Further compounding the situation is a 4% business-to-business (B2B) tax that was implemented last October on all service-related transactions. The B2B tax is scheduled to increase to 10.5%, again next April 1.

The months between October and April have been particularly tough on businesses, akin to being on the receiving end of a Rhonda Rousey armbar. That’s because as long as the IVU remains in effect, businesses paying the 4% B2B tax can’t receive a corresponding credit in their income tax forms. Although the B2B will increase to 10.5% in April, it will be implemented under the newfangled VAT system, which should provide more transparency and allow for tax credits.

The VAT system also intends to solve a longstanding problem with the IVU—namely, that it acts like a faulty sieve, with the island’s Treasury Department capturing about only half the revenues it should. It remains to be seen whether the government will be able to successfully implement so many tax changes in such a short time.

The months between October and April have been particularly tough on businesses, akin to being on the receiving end of a Rhonda Rousey armbar.

—DC

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Day 12

“On the 12th day of Christmas, the Three Kings Gave to me…”

12 Months ‘til Exit…

After a term in office full of challenges and not very unexpected difficulties met with faulty rationale, ineffective and subpar performance, Gov. Alejandro García Padilla decided to give the people of Puerto Rico the best Christmas gift any bankrupted administration could buy: He decided not to run for re-election, but not that he didn’t want to “with all his heart.” At the same time, he also gave us the not-so-secret gift No. 2: He will dedicate “all his time and all his energy to face the challenge of providing a future to our people,” as he has been doing for the past three years.

While most people do appreciate García Padilla’s first gift—including several thousand populares—gift No. 2 has many looking for the next white elephant gift-exchange party. It isn’t a matter of them wanting to be accused, God forbid, of being re-gifters, like some ungrateful character in Seinfeld lore, but indeed, there are some gifts whose usefulness is far less than the cost of just having them.

“You know Alejandro, you don’t need to keep on ‘giving’ to the people. Some people even think you have given too much,” said one of his close supporters, who is now a Bernier advocate.

To the governor’s lovely second gift, critics have said it will only cause more chaos, panic and disorder, not only among Puerto Rico’s creditors, but also among local residents as well. But populares know best—less is more and more is less—so, why ruin it? There are only 12 months left ‘til the final curtain.

Now just imagine Luisito Vigoreaux hosting the traditional New Year’s bash and the orchestra playing the tunes of Auld Lang Syne.

“Should old acquaintance be forgot, and never brought to mind? Should old acquaintance be forgot, and days 0’ lang syne?”

The answer is: Yes!

Populares know best—less is more and more is less—so, why ruin it? There are only 12 months left ‘til the final curtain.

—JAH

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