Puerto Rico credit unions not alarmed by decision to ask Fiscal Board to file bankruptcy under Title III
SAN JUAN – Although Puerto Rico’s credit unions have more than $1 billion invested in Puerto Rico securities, the governor’s decision to ask the Financial Oversight and Management Board to file bankruptcy under Title III of Promesa did not raise an alarm.
Gov. Ricardo Rosselló announced that, on Tuesday evening, he asked the fiscal control board for protection under Promesa’s Title III. The board then presented Wednesday morning the legal proceeding in the U.S. District Court for Puerto Rico, marking the beginning of the largest debt restructuring process in the history of the municipal bond market.
Ivelisse Torres, chairwoman of the Puerto Rico Cooperatives Supervision & Insurance Corp. (Cossec) and commissioner of the Puerto Rico Development Commission, said the sector’s fiscal plan to guarantee the solvency of credit unions takes into account different scenarios that include default and total loss of the value of its bonds.
“The fiscal plan contemplates total default of 0%. The sector is not affected because that is a scenario that can be faced,” she said.
The plan also contains the scenario that some 25 credit unions in financial straits will have to be consolidated with ones that are financially strong, Caribbean Business learned.
As a matter of fact, the oversight board has not yet made Cossec’s fiscal plan public because the board wants to have a clear picture of the consolidation process, Torres said.
The official said the reserves that each credit union has in conjunction with Cossec’s reserve totals $760 million, which is enough to face losses in the sector without having to touch the Cossec’s insurance.
Torres praised the governor’s decision to file for bankruptcy under Promesa because he believes it is in the best interest of Puerto Rico.
According to information obtained by Caribbean Business from other sources, the island’s credit unions have more than $1 billion invested in Puerto Rico bonds and $500 million in other investments that do earn a profit. However, the credit union sector faces some $500 million in losses over an amortization period of 15 years.
About 46% of the local securities are invested in the financially ailing Government Development Bank and the rest in other entities and corporations with financial problems, such as the Puerto Rico Electric Power Authority, the Aqueduct & Sewer Authority and the Puerto Rico Sales Tax Financing Corp., or Cofina.