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Puerto Rico bond insurer: Revised fiscal plans ignore creditors’ rights

By on January 26, 2018

SAN JUAN – A monoline bond insurer chided the revised fiscal plans submitted by the Government of Puerto Rico, and Electric Power (Prepa) and Aqueduct & Sewer (Prasa) authorities for certification by the Financial Oversight & Management Board.

Assured Guaranty officials contend the revised fiscal plans fail to differentiate essential and nonessential spending and “ignore” both creditors’ constitutional rights and contractual liens and covenants. They said the plans are irresponsible, would prevent the island from accessing the markets and result in costly litigation for years to come.

After Hurricane Maria, Assured said it voluntarily withdrew its lawsuit challenging the legality of the commonwealth’s initial fiscal plan to avoid distracting from the recovery effort and because the plan would be revised.

Assured Guaranty withdraws lawsuit against Puerto Rico fiscal plan

The withdrawal of the lawsuits should have provided an opportunity for talks among the fiscal board, government and creditors to work toward a consensual plan that would “prevent years of costly litigation,” Dominic Frederico, president & CEO of Assured, said in a written statement.

Sadly, Puerto Rico’s authorities have squandered a critical opportunity. We appreciate the significant time and effort that goes into the development of these plans, and welcome the scrutiny of operational and organization structures that have been put forth. However, when the Oversight Board asked for revised plans in light of the hurricane damage, the government and Oversight Board should have taken the opportunity to reset the relationship with all stakeholders and produce plans that focus on recovery efforts and comply with the mandatory requirements of PROMESA, the Commonwealth Constitution, and the United States Constitution,” Frederico said.

Adding, “Unfortunately, the Revised Fiscal Plans repeat and exacerbate flaws in the original plans.”

The fiscal board, he said, should prioritize using government resources to implement redevelopment measures “focused on the immediate needs of the Puerto Rican people, many of whom remain without electric power more than four months after the hurricane, as well as following the requirements of Promesa and abiding by the rule of law.” The revised fiscal plans, “as presented, once again erode Puerto Rico’s credibility and undermine confidence in the Puerto Rico government to honor its obligations.”

“If the Oversight Board certifies, and [the] Puerto Rico [government], implements the Revised Fiscal Plans as proposed, it would ensure Puerto Rico will be distracted by years of costly litigation and will eliminate access to the traditional capital markets for the foreseeable future,” Frederico continued. “But the consequences extend far beyond Puerto Rico, to the entire U.S. public finance system. This disregard of creditors’ rights would shake, on a nationwide basis, investors’ confidence in the enforceability of their contracts, the rule of law and public officials’ willingness to abide by the commitments they have made,” he said.

Frederico noted that commonwealth administrations have not produced audited financial reports for fiscal years 2015, 2016 and 2017, and that the government “continues to evade current financial transparency. Nevertheless, they ask investors to accept a complete rejection of their legal rights based on unsubstantiated long-term assessments of the economic impact of the hurricane, and draconian guesses on outmigration,” he said.

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