House Committee Chair Mulls Alternative to Address GO bondholders’ Claims
SAN JUAN – General obligation (GO) bondholders could have see a solution on provided by Puerto Rico’s government to address the default on constitutional debt, and on Wednesday, House Treasury and Budget Committee Chairman Antonio “Tony” Soto shared that possible alternative Thursday with former New York Gov. George Pataki, who is interceding for a GO bond holder group.
Soto told Caribbean Business that he is working on an alternative to present the executive branch to address the GO defaults and that consists in creating a securitization mechanism with recurrent General Fund revenue to cover the debt service guaranteed by the Constitution.
Soto held back from detailing which recurrent revenue would be used for his proposal, which in the discussion and development process, and was discussed Thursday with Pataki in a meeting that lasted more than an hour.
“Within the possibility of complying with the Constitution, complying with GOs, and earning credibility and market access, I am considering an alternative to present to the executive [branch], which consists in creating a securitization of some recurrent revenue of the state to pay the GOs,” Soto said.
As part of the meeting, Pataki shared GO bond holders’ concerns amid successive Puerto Rico defaults on that debt, and reiterated that the debt has payment priority, as established by the Constitution.
“[Pataki] presented [GO bondholders’] worries, that they have some rights to be paid first, and they shared their concern over Cofina [Spanish acronym for the Sales Tax Financing Corp.]. I didn’t assume a stance on that regard, but I did tell them we must honor our Constitution. We agreed we would be in touch with the executive [branch] and [Gerardo] Portela, [director of the Puerto Rico Fiscal Agency and Financial Advisory Authority (Fafaa)], regarding the possibility of securitizing a recurrent revenue of the state to guarantee GO debt,” explained Soto.
Pataki stresses importance of paying GOs
For his part, the former New York governor told the House Treasury & Budget Committee chairman that it is important for Puerto Rico to regain credibility in capital markets to boost the island’s development, but first the government must pay its GO debt.
Pataki recounted to Soto his experience managing New York’s fiscal crisis and a control board, and emphasized that if Puerto Rico wants to grow and strengthen its economy it needs capital investment and market access.
“We concurred that Puerto Rico needs to earn credibility to obtain the market access it lost in the [last administration] due to an erred public policy of not paying creditors and enter a confrontation with bondholders in the negotiation process. Both of us agreed that to achieve financial solvency it can’t be through more taxes, and to have market access we must pay. GOs are protected under the Constitution and one of the priorities must be to pay GOs,” Soto said.
Pataki, who has been in Puerto Rico since Wednesday to intercede on behalf of GO bondholders in several meetings with legislators, also spoke of reforms he implemented in New York with the fiscal oversight board, which included changes to criminal laws to address the issue of safety, and a tax reform that allowed to gradually reduce tax rates.
Pataki launched pushed for changes to labor laws to transform the Big Apple into a more competitive city, just as Rosselló has been doing, Soto said.
“There were many issues in which there was convergence, the experience they had over there in New York helps us because it is similar. We aren’t alienated from the rest of the world, and we can learn from experiences like New York’s, what they did to boost the economy and be competitive,” Soto added.
The representative said that “in this type of meeting” everyone’s role must be respected, which is why he listened to Pataki’s concerns on behalf of bondholders while he focused on presenting solutions to solve Puerto Rico’s fiscal crisis, and that includes the debt’s payment.
“I won’t make unilateral decisions on behalf of the Government of Puerto Rico, nor define things that may wind up in the courtrooms someday,” he said in reference to the media contest between GO and Cofina bondholders.