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García Padilla Sends House Speaker Ryan a Letter on Release of Financial Statements

By on February 22, 2016

SAN JUAN – Puerto Rico Gov. Alejandro García Padilla wrote a letter Monday to House Speaker Paul Ryan (R., Wis.), noting the recent release of a draft of the commonwealth’s financial statements for fiscal 2014, urging once again for congressional action on Puerto Rico’s fiscal and economic crisis, while warning about the consequences of failing to act promptly.

The governor said that in addition to an “unparalleled amount of verifiable financial information” that has been made public in recent months, the latest financial report “provide you with further information that could be useful in evaluating the Commonwealth’s financial condition and new federal restructuring legislation needed to comprehensively address the Commonwealth’s immediate debt crisis.”

The commonwealth government continues to lobby for congressional action during the first months of the year, particularly over access to a broad debt-restructuring regime. While House Speaker Ryan has said the lower chamber aims to come up with a solution to the Puerto Rico issue before the end of March, the Republican majority in the upper chamber has yet to commit to a similar deadline, although some GOP senators have said they are moving forward on several initiatives.

Meanwhile, making public the 370-page draft of the financial statements is the García Padilla administration’s latest response to nonstop calls from different sectors, including Congress, demanding the immediate release of the audited financials, which were due since May. Noting the severe crisis affecting Puerto Rico as a whole, the draft reiterates the possibility of measures that could affect creditors, such as further and more significant defaults, enacting local legislation to establish a debt moratorium, and even seeking relief under existing receivership laws, if the island fails to promptly restructure its debt.

“The depth of our debt crisis has been extensively disclosed. Our debt is unsustainable and a broad restructuring of our debt is inevitable. The issue is whether the restructuring will occur under a broad legal framework and in an orderly manner or without any legal guardrails and chaotic. Failure to enact a broad restructuring framework will cause years of legal challenges — against the Commonwealth and among creditors,” García Padilla wrote to Ryan.

House Speaker Paul Ryan of Wisconsin (AP Photo/J. Scott Applewhite, File)

House Speaker Paul Ryan of Wisconsin (AP Photo/J. Scott Applewhite, File)

While the discussion has somewhat centered on regaining access to Chapter 9 of the U.S. Bankruptcy Code, both the Obama administration and the Puerto Rico government have been increasingly demanding a restructuring regime broader than Chapter 9, which only covers public corporation debt, or roughly a third of the island’s $70 billion debt. A broader regime would also include the commonwealth’s general obligations.

Puerto Rico could be defaulting on additional credits this summer amid a steeper debt-service schedule, which the commonwealth government has warned it may not meet amid the island’s severe cash crunch.

As for the audited financial statements for fiscal 2014, the governor said these would be ready by April, adding the administration is “working together with KPMG with all deliberate speed to complete the audit.” While the independent auditors, KPMG, are about six to seven more weeks away from completing the process, after receiving the draft from the government on Jan. 31, Treasury Secretary Juan Zaragoza has warned that “additional issues” could arise during the final stretch of the auditing process, which could result in “an adjustment to such timetable.”

García Padilla will be meeting in Washington, D.C., during the next couple of days with commonwealth restructuring advisers to discuss the island’s efforts to tackle its fiscal and economic crisis, La Fortaleza said Monday. The governor left on Friday for the nation’s capital, where he participated in the National Governors Association’s (NGA) winter meeting.

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