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Restructuring Prifa, Pridco among Puerto Rico fiscal agency’s priorities

By on September 12, 2018

SAN JUAN – The recently appointed head of the Puerto Rico Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym), Christian Sobrino, said Wednesday that the entity’s priority will now be to focus on the debt restructuring of the Puerto Rico Industrial Development Co. (Pridco) and the Puerto Rico Infrastructure Financing Authority (Prifa).

“Aafaf’s priority in debt restructuring, apart from continuing the current process in Title III and Title VI [of the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa)] plan, is to search for creative solutions with Pridco and Prifa,” Sobrino said, describing the restructuring of the entities as “low-hanging fruit that can also offer a huge success story in the island’s recovery.”

Prifa defaulted on about $30 million of its more than $2.2 billion debt in 2016 because the legislature did not allocate debt-service funding, while Pridco’s debt that year stood at $786 million.

Christian Sobrino (File)

Sobrino, who is the current president of the Government Development Bank, which is being restructured, made the remarks during a presentation to investors Wednesday in which he provided an overview of the situation in Puerto Rico and some of the plans to improve the island’s economic outlook.

Debt restructuring is essential to the long-term transformation of Puerto Rico, Sobrino assured. A sustainable level of debt means Puerto Rico can repay investors, access markets and provide a success story, he reiterated.

The GDB’s restructuring is the first and only Title VI debt adjustment under Promesa. The entity, which used to be the island’s financial adviser, is slated to be phased out. Recently, the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) was also able to reach a preliminary agreement to restructure its debt through the Title III mediation process. The preliminary agreement should be closing in the upcoming months, Sobrino said.

The Puerto Rico Electric Power Authority is also on its way to having its debt restructured. While recent talks for a debt-restructuring agreement fell through for the Puerto Rico Aqueduct and Sewer Authority, Sobrino said he expects that talks for a consensual agreement will continue.

“We want negotiations to continue. We would like consensual deals to be executed when possible,” Sobrino said.

After speaking about some of the challenges the island is facing, such as a population that has dropped by 2% each year for the past five years, Sobrino said Puerto Rico’s economic activity index has risen for eight months despite interannual declines. General Fund revenue has exceeded projections because of federal disaster funding. There are 1.4 million people working, a 2.3% increase compared with July 2017, he said, adding that the labor-force-participation rate had reached 41% in July this year, or 1.4% higher than in July 2017.

Nonetheless, Puerto Rico needs funding for capital expenditures and investment in public infrastructure. From 2007 to 2015, capital expenditures for major public agencies and components fell 70%. Infrastructure problems were further worsened by Hurricane Maria in September 2017, with Puerto Rico now needing about $132 billion in capital investment to fully recover.

That is why, he said, there is a team of commonwealth government officials in Washington to ensure Puerto Rico is included in President Trump’s proposed infrastructure bank initiative. “Capex [capital expenditure] is not a budget issue but a life and death issue,” he stressed.

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