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‘Por Ahí Viene El Tren’

By on June 30, 2016

There are two salsa classics “Acángana” and “Por Ahí Viene el Tren” that would make fitting titles to the defining juncture in which Puerto Rico finds itself—a $950 million debt payment of the roughly $1.9 billion owed—that is looming July 1 against the backdrop of federal legislation that cannot come a moment too soon for a commonwealth seeking debt relief.

Indeed, all eyes are on HR 2578 also known as the Puerto Rico Oversight, Management & Economic Stability Act (Promesa)—the bill is in the Senate where it had been expected to go to a straight “up or down” vote. However, there are some senators—namely Lisa Murkowski (R-Alaska), Bob Menéndez (D-N.J.) and Minority Leader Harry Reid (D-Nev.) who have expressed a need to introduce amendments to the bill.

They are particularly concerned that the measure is undemocratic because it would put all of Puerto Rico’s financial affairs under the purview of the “territorial oversight board,” comprising seven members who will not be democratically elected. If they tinker with the bill, it will be sent back to the House. In very articulate Spanish, Gov. Alejandro García Padilla said “No hay tiempo.”

If the bill happens to pass in the Senate, it will enable a law that is chock-full of provisions for fiscal oversight and the restructuring of debt. The true value of Promesa came to the forefront during two panel discussions “The Truth About the Territorial Control Board,” and “Promesa: Perspectives From the Creditor Camp,” moderated by Caribbean Business during a creditor conclave hosted by the Bonistas del Patio, an advocacy group representing Puerto Rico bondholders who live on the island.

That the value of Promesa is truly in the eye of the beholder became clear during the panel discussion exposing creditor perspectives. For some creditors, Promesa’s Title VI, which enables collective-action clauses, is valuable because it binds holdouts in deals struck. That is important because it would keep minority creditors from dragging cases on for years, as happened with deals that were perpetuated for a decade in Argentina’s debt crisis.

It was eye-opening to hear the creditors on stage—Senior Vice President & Director of Municipal Credit Research Joe Rosenblum, Ambac CEO Nader Tavakoli, and CEO & CIO for Fundamental Credit Opportunities Héctor Negroni—talking about the true value contained in Title II of Promesa. That provision enables oversight and gives the territorial oversight board teeth to take a bite out of fiscal imprudence.

The creditors feel that if credible numbers can be produced and budgets can be structurally balanced, there will be no need to get to Title III in the bill, which provides for the orderly restructuring of debt in what amounts to be a euphemism for Chapter 9.

All of the local bondholders in attendance applauded that stance because they feel a need to restore much-needed transparency to government accounting and accountability. Their plea: “Don’t tell me you can’t pay me when you can’t produce audited financial statements.” Fair enough.

So, too, was it important to hear Steve Hart and Javier Ortiz, who spend much time on Capitol Hill lobbying on behalf of Bonistas del Patio, express in no uncertain terms that Promesa sorely lacks economic development measures. The demise of Section 936, once the key driver of Puerto Rico’s economy, often comes up in conversations as lawmakers begin to scratch the surface on searching for new incentives that can help kickstart the economy. Ortiz believes that at the very least, Promesa would put the onus on the members of the Economic Development Commission created by the law to come up with measures that will spark economic growth. No more looking the other way on the economic development front. Se acabó.

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