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Puerto Rico creditors blast commonwealth’s revised fiscal plan

By on February 16, 2018

SAN JUAN – Various creditors that hold a substantial portion of Puerto Rico’s outstanding debt said the most recent version of the commonwealth’s Fiscal and Economic Growth Plan fails to provide a “credible basis” on which to restructure the island’s debt and “lacks a foundation” for revitalizing the local economy or restore access to the capital markets.

The group of stakeholders that joined to issue the release comprises bond insurers Ambac and Assured Guaranty; Puerto Rico Sales Tax Financing Corp. creditors Cofina Seniors Coalition; National Public Finance Guarantee Corp., the Mutual Fund Group, Syncora, the Puerto Rico Funds, and individual creditors.

To date, the commonwealth’s “focus on litigation has distracted stakeholders from the fact that it has no vision for igniting growth. In addition, policymakers have not yet put forth a detailed plan to encourage citizens and businesses to remain on the island,” creditors said in a release.

The group called planned government spending reductions minimal, with government payroll figures growing by 1.2% annually, even as the population is projected to decline by 20% during the fiscal plan period.

“This disconnect stands in stark contrast to the reductions in government expenditures achieved in practically every other municipal restructuring. While Puerto Rico’s government expenses – on a per capita basis – are projected to increase by 2% annually throughout the [fiscal plan’s] time horizon, the likes of Detroit, Stockton and San Bernardino exhibited annual declines of 5.2%, 3.0% and 3.7%, respectively, in the four-year periods following their restructurings,” they said.

Revised Puerto Rico fiscal plan doesn’t guarantee projected revenues

The group asked the commonwealth government to make the underlying analyses shared with the Federal Oversight and Management Board (FOMB) public for them to evaluate the fiscal plan.

“Right now, the Plan is unacceptably opaque on a number of levels,” they said, “neglecting to distinguish between essential services and expenses the government would simply like to pay; failing to fully account for cash held at various accounts that may be available to meet needs outlined in the Plan; not sharing audited financials; relying on an outdated migration forecast; and using healthcare cost and plan participation assumptions that contradict the government’s own outmigration forecast.”

They also said the plan’s debt sustainability analysis is built on sparse data and “outright mischaracterizations,” including a comparison of Puerto Rico to U.S. states.

“This overlooks the fact that citizens of Puerto Rico do not pay federal income taxes. The Commonwealth has acknowledged this reality when trying to access the capital markets in the past, stating that the GDB believes that any comparison of the public debt levels of Puerto Rico with the states should include state, local and federal debt,” they stressed.

Rather than comparing Puerto Rico’s debt levels to those of a state, the group said, the commonwealth’s municipal finance advisers should “construct an overlapping debt analysis that is consistent with accepted public finance practices,” adding that, “Any objective assessment will evaluate the amounts of debt existing at all levels of government stateside relative to Puerto Rico. Only through this type of analysis can Puerto Rico’s burden and, therefore, debt sustainability be effectively measured.”    

The creditors suggested benchmarking Puerto Rico’s debt sustainability against sovereign debt metrics warned of excessive litigation spending in the bankruptcy-like proceedings underway in court.

“Earmarking exorbitant fees for legal and financial advisors, whose interests are not closely aligned with those of Puerto Rico’s stakeholders, is a recipe for protracted litigation in lieu of consensual restructuring agreements. This reality is even more unsettling when taking into account the outsized fees paid to advisors working for the Federal Oversight and Management Board…and Puerto Rico Fiscal Agency and Financial Advisory Authority,” they said.


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