Friday, November 15, 2019

Swain’s World: Puerto Rico government frustrated with FEMA bureaucracy

By on February 15, 2019

Editor’s note: The following originally appeared in the Feb. 14 -20, 2019, issue of Caribbean Business.

While the government of Puerto Rico has an office to manage all recovery and rebuilding projects as well as federal disaster funding, the government is promoting the idea of having a federal coordinator to handle all matters related to the disbursement of federal funds.

Puerto Rico’s resident commissioner in Washington, Jenniffer González, proposed the idea to the White House in an effort to hasten the disbursement of federal aid. For weeks, the government has expressed frustration with the bureaucracy of the Federal Emergency Management Agency and pace to disburse billions in funding needed for the island’s recovery.

Resident Commissioner Jenniffer González (Screen capture of www.naturalresources.house.gov)

Part of the problem, as reported by stateside news outlets and investors on social media, is a lack of trust in the local government, which is viewed as corrupt and dishonest. This perception has been spurred by a lack of transparency in the financial information the government provides.

The federally appointed Financial Oversight & Management Board (FOMB), which has been in charge of the local government’s bankruptcy for more than two years, has until recently been urging the government to file needed financial reports.

Has the government complied? Not really.

The government was supposed to submit some 129 reports related to its progress to implement fiscal plans to the FOMB but has only provided 59 over the past month. In addition, 46 financial data reports were also required, but only 37 have been submitted.

The government has also failed to finish audited financial statements since 2016.

The FOMB publishes documents on its website and appears to be transparent. Caribbean Business, however, recently requested access to the documents used in the investigation conducted by Kobre & Kim about the causes of the debt, only to be told everything was in the report.

Cofina deal

As Caribbean Business first reported on the government’s Title III bankruptcy case, the FOMB, P.R. Fiscal Agency & Financial Advisory Authority and government confirmed that the debt-adjustment plan of the Sales Tax Financing Corp. (known as Cofina) went into effect Feb. 12.

The U.S. District Court for the District of Puerto Rico, by an amended order entered Feb. 5, confirmed the plan has come into effect. This marks the first-ever plan of adjustment under Title III of the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) to be confirmed and put into effect.

“Cofina’s emergence from Title III of Promesa is an important step toward restructuring Puerto Rico’s public debt, returning to the capital markets and laying the foundation for a more resilient, vibrant and stronger economy. Today’s achievement is proof that the government of Puerto Rico can accomplish creative restructuring solutions that safeguard the interests of the people of Puerto Rico,” Gov. Ricardo Rosselló said.

Cofina has issued $12,021,321,817.35 in new sales-tax revenue bonds in accordance with the adjustment plan. The new bond issuance and other restructuring transactions provide clear economic benefits to Puerto Rico. Today, Cofina restructured nearly 24 percent of Puerto Rico’s funded debt, providing Cofina with more than $17 billion in debt-service savings. Settlements implemented by the adjustment plan will provide the government of Puerto Rico with access to an average of $425 million annually.

In related news, the Unsecured Creditors Committee (UCC) came out this week against a proposed $7 million payment requested by the Puerto Rico Fiscal Agency & Financial Advisory Authority (Fafaa or Aafaf by its Spanish acronym) for expenses incurred by Bonistas del Patio, a local bondholder group, in Cofina’s negotiations.

“On the eve of the anticipated effective date of Cofina’s recently confirmed plan of adjustment, [Aafaf]— and surprisingly, not the Oversight Board—has filed an informative motion attaching a stipulation pursuant to which the commonwealth agrees to pay $7 million from its own funds to Bonistas del Patio, on account of professional fees purportedly incurred by Bonistas in connection with the Cofina plan of adjustment. This is the first time the court and other parties of interest, including the [UCC], have been advised of such an agreement,” the UCC said.

Rafael Rojo, head of Bonistas, said the lawyers hired by the group worked on a contingency basis and not through an hourly fee. “They were supposed to be paid once we reached an agreement on Cofina. Everyone criticizes the fact that millions were paid by other bondholder groups that were negotiating the deal and yet we are trying to protect some 60,000 local bondholders and are also trying to get the best lawyers we can,” he said, adding that the UCC’s counsel charged more than $15 million in fees. There are very few local law firms, he added, that could have done the work. Rojo said the government had agreed to pay for Bonistas’ expenditures for legal fees. Bonistas hired Davis Polk & Wardwell LLP as counsel, and Ducera representation as financial adviser.

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