Friday, January 21, 2022

Light Shed on Clawed-Back Funds

By on August 24, 2016

SAN JUAN — The Alejandro García Padilla administration will wait for the Puerto Rico Oversight, Management & Economic Stability Act’s (Promesa) fiscal control board to determine the use of roughly $290 million “clawed back” during the first six months of calendar-year 2016.
However, with the beginning of the new fiscal year on July 1, along with a new budget, the government is no longer making use of the constitutional clawback provision—technically speaking. That is because the government still withholds once clawed-back funds, this time under a new set of executive orders issued June 30, pursuant to Act 21 of 2016, or the Puerto Rico Emergency Moratorium & Financial Rehabilitation Act.
suarezThus, trustees of the affected credits are not receiving these funds, which are now being used by the central government and certain instrumentalities to pay for what is considered “essential services” by the administration.
“The funds retained by ‘clawbacks’ remain deposited in a bank account and are not being used for the urgent liquidity needs of the government. No action on these funds will be taken until discussed with the fiscal oversight board,” stated Puerto Rico Secretary of State and Puerto Rico Fiscal Agency & Financial Advisory Authority Director Víctor Suárez.
He is making reference to the $289 million collected from January to June 30, of which $143 million remains corralled at the cash-strapped Government Development Bank (GDB). The remaining $146 million sits in a “clawback account” held in Banco Popular, according to government documents.
Meanwhile, some of the entities that would be receiving funds from previously clawed-back streams include the Highways & Transportation Authority (HTA) and the GDB, both of which face significant liquidity woes that hinder the continuation of their operations.

“[Treasury Secretary Juan Zaragoza] reaffirmed as well that half the payments of la crudita, which are around $22 million [monthly], would continue to be destined to the operational use at HTA, and the other half would go to the GDB. That would provide additional liquidity,” said GDB President & Chairman Alberto Bacó Bagué during an exclusive interview with Caribbean Business.

According to the new GDB chief, the idea is to use up to $11 million from la crudita for the HTA’s operations, while the rest would go to the government bank. “After all, the HTA’s debt is with the GDB. So at least we will be receiving an additional $11 million,” he said, noting the $2 billion-plus massive HTA loan sitting on the GDB’s books.

Last November, García Padilla ordered the “clawback,” or reroute, of revenue streams that were pegged to cover debt obligations of the HTA, Infrastructure Financing and Convention Center District authorities. Under its Constitution, Puerto Rico can trigger the maneuver, but only to pay its general-obligation (GO) debt if no other resources are available.

About $169 million in clawed-back funds were used to cover a $400 million payment due Jan. 2 on commonwealth-guaranteed debt. But when the commonwealth defaulted on about $800 million due on constitutionally protected debt on July 1, including roughly $350 million in interest, no clawed-back funds were used to partially cover these payments.

The Ad Hoc Group of GO Bondholders’ legal counsel recently warned Banco Popular of not taking actions that could be “inconsistent” with federal and local law, when it comes to the use of clawed-back funds deposited by the Puerto Rico government in the financial institution.

Following the commonwealth’s July 1 default, some of the hedge funds that comprise the Ad Hoc Group sued the government on July 20, in an effort to secure clawed-back funds for the payment of the debt they hold.

Clawed-back revenue streams include the petroleum-products tax, known as la crudita, vehicle license fees, certain federal excise taxes related to the rum cover-over program and the hotel occupancy tax.

With the enactment of the latest executive orders, the administration is withholding other revenue streams to pay for essential government services, as it continues its cash-flow maneuvers to keep government operations running amid a broad moratorium on most of its debt obligations and Promesa’s legal shield against creditor lawsuits.

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