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Puerto Rico governor to Congress: Treasury is hindering access to disaster loan program

By on February 27, 2018

SAN JUAN – The U.S. Treasury Department is forcing the Puerto Rico Aqueduct & Sewer Authority (Prasa) to file for bankruptcy under Title III of the Promesa law if it wants to have access to Community Disaster Loan (CDL) Program funding even though the utility is in negotiations to restructure its debt with creditors.

The information is contained in a letter Gov. Ricardo Rosselló sent to congressional leadership in which he claims Treasury has “recklessly delayed” the island’s access to $4.7 billion in CDL funds and has even reduced the available amount. Caribbean Business first revealed that Prasa may be the second public corporation to seek a loan from the commonwealth after the Electric Power Authority (Prepa), which recently received a $300 million loan from the commonwealth to keep it afloat.

“The (Treasury Department) is insisting on a Title III filing for Prasa because of the UST’s [U.S. Treasury Department’s] desire to be assured repayment through imposition of a ‘priming’ lien, which would not be available under a less costly, consensual out-of-court Title VI restructuring,” the letter reads. “The Government believes a Title III filing for PRASA is costly and unnecessary, as a Title VI consensual debt modification may be achieved with its bondholders. The UST’s insistence on this prerequisite for a CDL loan to PRASA again rests on the notion that assurance of loan repayment—which is simply neither mandated nor required under the Appropriations Act—should be the primary consideration.”

Rosselló is seeking to bring to Congress’ attention the “arbitrary conduct of the Treasury Department over the last four months, which has effectively blocked access to approximately $4.7 billion of the CDL program” that Congress had already made available and “overridden the ability of any CDL loan issued to Puerto Rico to be forgiven, in clear contravention of applicable law.”

“I urgently seek your intervention in this matter to avoid further harm and suffering for the residents of Puerto Rico. Suffice it to say, any material interruption to Puerto Rico’s public services will only exacerbate outmigration of its population to the mainland and further deepen and prolong Puerto Rico’s decade-old fiscal and economic crisis,” the governor wrote to the Senate’s majority leader, Mitchell McConnell, and minority leader, Charles E. Schumer; as well as the House’s speaker, Paul Ryan, and minority leader, Nancy Pelosi.

In approving the Additional Supplemental Appropriations for Disaster Relief Requirements Act, Rosselló reiterates, Congress intended to make available to Puerto Rico and its public corporations $4.7 billion through the CDL program.

However, the governor says, Treasury, with which the commonwealth government is holding talks, has not been able to advance the loans on time and has “imposed conditions incompatible with the purpose of the program.”

Rosselló pointed out that Treasury has reduced, “inexplicably,” the amount of initial financing of $4.7 billion to $2.03 billion “in violation of the federal law.”

While President Trump and Congress “opened the door for emergency relief” for Puerto Rico last October through the Appropriations Act, Puerto Rico continues in a “precarious” fiscal state, with the possibility of the aid approved by law being “quashed” by Treasury, the governor said.

He added that the inaction is despite Puerto Rico’s Fiscal Agency and Financial Advisory Authority (AAFAF) complying with Treasury’s requests for information.

The Treasury’s move follows the revelation that billions of dollars were found in Government Development Bank (GDB) accounts.

Fiscal board retains firm to conduct analysis of Puerto Rico gov’t bank accounts

In January, Treasury and the Federal Emergency Management Agency said Puerto Rico’s $4.7 billion loan would not be granted because the local government has $1.7 billion in available funds, most of which are contained in bank accounts at the Government Development Bank.

The island’s commonwealth said a large portion of the $1.7 billion is restricted funds and has insisted it lacks liquidity. The island’s fiscal oversight board ordered an audit into the funds.

Treasury has also said it will grant the funds only if the island’s Treasury Single Account falls below $800 million.

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