Emergency at Highways Could Prompt Legal Backlash
SAN JUAN — The Puerto Rico Highways & Transportation Authority (HTA) has joined the list of public entities operating under emergency periods, La Fortaleza announced Wednesday. Similar emergency periods have been declared for the Government Development Bank and the Puerto Rico Infrastructure Financing Authority.
While not imposing moratorium on HTA’s debt-service payments — which the government says are covered until next year — Gov. Alejandro García Padilla is suspending the remittance of certain funds that go toward paying debt obligations in a bid to guarantee continuity of essential services provided by HTA. The administration says HTA needs $25 million a month to do the latter, and an additional $150 million to pay down what it owes to its suppliers.
“The executive order is suspending the obligation of the HTA to transfer revenues to its bondholders from tolls and any other income received and imposes a ‘stay’ in legal claims and of any kind,” La Fortaleza stated Wednesday.
The HTA is expected to meet in full roughly $240 million in debt service due July 1, but would do so by siphoning its reserve accounts.
A draft of an executive order to place the authority under the recently enacted moratorium law’s bounds had been in the works for days, as the Alejandro García Padilla administration seeks to shield the HTA from creditors’ legal recourse, sources told Caribbean Business.
However, such a move by the government could prompt some backlash in court, including a potential challenge to the moratorium law—about a month before more than $1.5 billion in debt-service payments hit the commonwealth.
Last week, Ambac Assurance Corp., a bond insurer with exposure to HTA debt, sued in federal court, calling for a receiver to be appointed at the public entity. Earlier this week, the monoline asked the court to freeze $100 million received from the 10-year extension to the PR-5 and PR-22 concession contract between HTA and Metropistas.
Yet, as of Tuesday, two sources said the local government had used these monies, with checks already out clearing against these funds. Last Friday, La Fortaleza announced it would use roughly $80 million of the $100 million received to pay down its outstanding debt with government suppliers, which are owed close to $2 billion, officials have said.
The HTA will get $18.2 million to pay its own suppliers, due about $155 million. The remaining $2 million covers “transaction-related costs,” La Fortaleza stated last Friday.
With La Fortaleza pulling the trigger on the executive order placing HTA under emergency period, it remains to be seen if it would effectively protect the public entity from Ambac’s legal action.
Puerto Rico’s moratorium law provides for a legal stay mechanism that seeks to shield public entities against creditors’ remedies, once they are placed under an emergency period. However, it is still uncertain whether it has a retroactive effect—for instance, a complaint such as Ambac’s, filed before the governor’s order calling for an emergency period.
For Justice Secretary César Miranda, it is a theoretical question that can’t be quite answered. “We haven’t seen it in practice. Obviously, it is one of the areas where we have theorized a lot—whether it could have the effect of stopping an action in course—and there is nothing solved yet, I must say,” he told Caribbean Business last week.
“It is a somewhat premature action because bondholders have their payments guaranteed until 2017, a fact Ambac admits in its lawsuit,” HTA Executive Director Carmen Villar stated last week.
Nevertheless, Ambac believes the public corporation’s ability to make subsequent payments “is very much in question.” The monoline’s jitters stem from its exposure to HTA’s $4 billion-plus debt, of which Ambac insures about $470 million. If the authority were unable to pay insured debt-service payments, the monoline would have to foot the bill.
In addition to a receiver and freezing up the $100 million that was deposited at the Economic Development Bank (EDB), according to the complaint, Ambac is calling for expedite discovery into the authority’s financials. It argues the authority has failed to meet its fiduciary and contractual duties to its creditors, questioning the “suspect timing” during which HTA and Metropistas, a local subsidiary of Spanish firm Abertis, recently agreed to extend the PR-22 and PR-5 concession contract.
The transaction represented “an effective financial alternative amid the commonwealth’s economic situation and the limited liquidity projections,” according to La Fortaleza.
Ambac seeks to prevent the Puerto Rico government from using said funds until the court decides on the HTA’s receivership matter. According to Ambac, the authority had notified the insurer that the $100 million was deposited at the Economic Development Bank (EDB).
Although it is not challenging the contract itself, Ambac has been after the use of said funds, arguing these “would likely be siphoned off by the commonwealth government” for purposes not related to the HTA.
For her part, Villar says that the insurer expects the commonwealth to use its limited cash to pay bondholders instead of ensuring essential services to Puerto Rico residents. “We cannot yield to untimely attacks of this nature that only intend to intimidate us,” she advised.