García Padilla Declares Moratorium on its Premium Debt
SAN JUAN — As previously reported by Caribbean Business, La Fortaleza announced on Thursday the executive orders that authorize the government to miss payments on its constitutionally guaranteed debt that it owes the following day.
A moratorium is established on debt obligations that carry the island’s full faith & credit—roughly half of the $1.9 billion due on July 1. That includes about $780 million worth of general obligations (GOs) and $178 million of Public Buildings Authority (PBA) bonds.
The governor also ordered a moratorium on certain obligations of the Highways & Transportation Authority (HTA), Convention Center District Authority, the Public Employees Retirement System, the Industrial Development Co. (PRIDCO) and the University of Puerto Rico (UPR).
Notwithstanding the executive orders, partial payments could still be made, although they have to come from debt-service funds already held by a trustee.
The governor also ordered to cease the transfer of cigarette taxes to the Metropolitan Bus Authority (AMA by its Spanish acronym), and authorized government entities operating under states of emergency to stop making lease payments to the PBA.
According to the La Fortaleza statement, the latest fiscal maneuvers will protect these entities from creditors’ actions that would jeopardize the resources they need to operate.
“These measures are reasonable and necessary to ensure essential services, while the debt is restructure under the legal framework provided by Promesa [the Puerto Rico Oversight, Management & Economic Stability Act],” reads the statement.
Puerto Rico could still be paying a large chunk of the $1.9 billion it owes to its creditors that day.
For instance, the Electric Power Authority (Prepa) reached a deal with a group of its creditors who will provide about $260 million to the utility to help it fund its $417 million payment due July 1. The utility also extended until Dec. 15 an initial debt-restructuring agreement struck with a majority of its creditors, while updating some of the milestones that need to be achieved for the deal to run its course.
Of the $780 million due on GO debt, $425 million corresponds to principal and $355 million to interests.
Also at risk is about $87 million tied to the Infrastructure Financing Authority (AFI by its Spanish acronym). The government defaulted earlier this year on AFI debt, and the entity is already operating under a moratorium executive order.
The rest of Friday’s debt-service tab corresponds to public entities that would meet their July 1 payments in full, if there is enough debt-service funds held by a trustee. This includes the Aqueduct & Sewer Authority ($147 million), Municipal Financing Authority ($7.5 million), and the P.R. Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority [Afica by its Spanish acronym] ($4 million).
Meanwhile, although these payments were expected to be made in full — according to previous statements from officials and documents — it is yet unclear if HTA ($221 million), CCDA ($20 million), ERS ($14 million), and Pridco ($13 million) will meet in full their July 1 debt-service payments, after the governor’s moratorium orders.
With some creditors already suing the Puerto Rico government over its latest fiscal maneuvers, officials demanded swift enactment of Promesa. They say the legislation gives the island the legal protections it needs in the face of a potential default.
The governor’s executive orders also provide for a stay against legal actions from affected creditors.
On Wednesday, the bill cleared Congress with bipartisan support, and is on its way to President Barack Obama for its signing. The legislation establishes a financial control board, charged with bringing back access to capital markets for Puerto Rico. It would oversee the island’s budgets, fiscal plans and debt-restructuring efforts.
Promesa also temporarily shields Puerto Rico against creditors’ lawsuits, during which time the board determines if the local government can at least make interest payments. However, it is unclear what happens in the time before the board is constituted.
Some creditors have already warned they may be challenging Promesa’s legal stay mechanism, as they a court could render it invalid.