Carrión: Voluntary Negotiations Needed Before Bankruptcy Process
SAN JUAN–Despite Puerto Rico’s deep financial crisis, the Financial Oversight Board cannot go directly to the bankruptcy process available in Title III of Promesa because the federal law requires government entities to have first made good-faith efforts to reach a consensual restructuring with creditors.
At a news conference Tuesday, Board Chairman José Carrión said Promesa requires the board to deal first with fiscal reform, which is the reason the board must certify the fiscal plan before engaging in debt restructuring.
“The budget problem is of such magnitude that it will be essential. There is an intention to restructure. That is why we are starting conversations with creditors,” he said, adding that the debt restructuring will be done through Title VI of Promesa, which calls for voluntary debt negotiations.
Gov. Alejandro García Padilla issued a statement insisting that the Financial Oversight Board should go directly to the bankruptcy process available in Title III of Promesa instead of the voluntary negotiations process of Title VI.
The governor warned that if Puerto Rico doesn’t seek protection from Title III before the stay on lawsuits ends in February 15, 2017, it will run out of money and essential services will be severely affected.
However, Title III of Promesa requires the Oversight Board that prior to issuing a restructuring certification on a given government agency or public corporation, it must first ensure that the government entity has made good-faith efforts to reach a consensual restructuring with creditors; has adopted procedures necessary to deliver timely audited financial statements; and made public draft financial statements and other information sufficient for any interested person to make an informed decision with respect to a possible restructuring.
Other entities that could use Title III of Promesa are those that have adopted a fiscal plan properly certified by the board or that are unable to make debt payments despite having modified their debt.
Secretary of State Víctor Suárez said Title III is the route to go because before the enactment of Promesa, the government approached creditors but was unable to engage in voluntary restructuring. “It would be irresponsible for the incoming government not to use this tool,” he had said to Caribbean Business.