Legislation to benefit Puerto Rico bondholder group introduced
SAN JUAN – Puerto Rico Senate legislation that would allow bondholder group Bonistas del Patio to use up to 90 percent of the original, or par, value they paid the government for their bonds, as collateral to obtain the lease on public properties and loans granted or guaranteed by government agencies, public corporations and municipalities, was filed Thursday with the legislative body.
Nonetheless, Senate Bill 827, introduced by the president of the upper chamber, Thomas Rivera Schatz, would condition the incentive by requiring the lease of public property or to obtain a loan from the government be used for the specific purposes of maintaining jobs in a business, expansion of these [entities] or the establishment of a business that produces new jobs.
He said the legislation is focused on local bondholders, estimated to be 60,000 residents of the island, who had or have businesses that create direct and indirect jobs and own about $15 billion in government bonds.
“That enormous capital of $15 billion must be reactivated to facilitate local investment, production, job creation, increase exports and reduce imports. We should not continue to focus on the hope from slow and uncertain investment promotions outside the island. The most accessible alternative is the maximum use of local capital. This bill facilitates the reactivation of this capital, and its incentives do not affect the government’s budget,” Rivera Schatz said.
For five years, Bonistas del Patio has not charged principal or interest on these assets, due to the government’s nonpayment. Under current laws and regulations, these local bondholders cannot use their enormous capital as collateral or a guarantee in private banks to manage financing that would allow them to maintain, expand or create new business and economic development projects.
As indicated by the Senate president through a release, the $15 billion in local bonds constitute one of the main sources of capital in Puerto Rico. The vast majority of that capital, he explained, was the product of entrepreneurial initiatives by Puerto Ricans through their businesses and professions.
The fundamental purpose of this legislation is to convert “dead capital” into “investment capital,” making it possible for 90% of the nominal value of Puerto Rico government bonds to be accepted as collateral or a guarantee in leases, loans or public financings, including those that will arise from funds and programs aimed at socioeconomic recovery in the wake of the recent natural disasters.
“Independent of Puerto Rico’s current credit ratings, the truth is that all these bonds continue to maintain a local and national value, according to their respective characteristics and emissions. In addition, the good name and credit of the people of Puerto Rico remain committed to these obligations and those who produce economic activity on the island, work and provide taxes here, and lend their savings to Puerto Rico,” Rivera Schatz said.
“To irremediably deprive these bondholders of the possibility of recovering their savings and investments and forcing them to not use that capital as collateral or as a guarantee on public financing to maintain, expand or create new business and economic development projects, in addition to an injustice, is a contradiction to the goals to promote, in the short term, economic development.
“If the current circumstances do not allow the people of Puerto Rico to comply with the obligations of the bonds, as originally agreed to, then we must create the conditions for that capital to again become a source for economic development and job creation. In this way, the island’s economy is helped and these proven entrepreneurs are also offered the opportunity to recover all or part of what they have lost, until today, by reinvesting in our economy,” he added.
Currently, he said, the only alternative these bondholders have to survive economically is to sell their bonds to “vulture” or billionaire funds at speculative values of up to 15 percent to 20 percent of the value they originally paid for their bonds.
He called maintaining the current “restrictive” conditions that limit the use of that capital “senseless.” “Also, maintaining those restrictions on the use of that native capital constitutes indirect backing of continuing speculation on the purchase and sale of bonds by large investment funds that can assume the risks and long-term recovery of their money; meanwhile that speculative market of prices that are too low also causes loss of local capital.