Puerto Rico Debt Restructuring Conference Held in NYC
NEW YORK – An important investor conclave took place in New York City on Tuesday, bringing together various creditor groups, monoline bond insurers and key members of Puerto Rico’s restructuring brigades.
Debt-restructuring talks between the commonwealth and its creditors; the island’s battered economy; and the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) bill being currently discussed in Congress were among the main topics at the Puerto Rico Restructuring Conference.
The one-day, three-panel event, held by DebtWire Municipals at the University Club of New York, featured such participants as Government Development Bank (GDB) President & Chairwoman Melba Acosta; Sergio M. Marxuach, public policy director at the Center for a New Economy (CNE); New Progressive Party gubernatorial candidate Dr. Ricardo Rosselló; and Richard Ravitch, co-chair of the New York State Budget Crisis Task Force and former lieutenant governor of New York.
Also participating were José Sosa Lloréns, who represents local credit-union group G25; Jorge Irizarry, executive director of Backyard Bondholders; Arnaldo Soto Jr., chairman emeritus of the Puerto Rico Construction & Infrastructure Cluster; Dominic Frederico, president & CEO of Assured Guaranty; and Nader Tavakoli, president & CEO of Ambac.
Various panelists agreed that Puerto Rico has severely lacked transparency in dealing with its fiscal crisis and is dangerously running low on credibility — a combination that makes achieving voluntary deals even more difficult. For instance, still due audited financials for fiscal year 2014 were frequently brought to the conversation.
What’s more, Assured’s Frederico asked what happened to the revenues clawed back by the government late last year, adding he believes new consensual deals, such as that achieved for the Puerto Rico Electric Power Authority, could be achieved, but the government’s current course of action won’t help at all.
“You have a government that seems to ignore every law…. How can we do anything if they don’t follow the law. When do we get to choose which law or constitutional provision is enforced?” he said.
Meanwhile, others called for a change in strategy, particularly when it comes to the so-called superbond — the Alejandro García Padilla administration’s proposed debt mechanism through which it intends to restructure almost $50 billion of Puerto Rico’s debt.
Sosa, from the G25 credit-union group, believes an entity-by-entity approach should be quickly adopted and that the commonwealth’s negotiation strategy “has been divided among creditor groups.” For instance, Backyard Bondholders’ Irizarry explained how the group formed precisely out of local bondholders’ frustration from not being part of the negotiations.
For her part, the GDB chief said the superbond would help the commonwealth manage its debt more efficiently, but conceded the structure is not set in stone.
Acosta added that a third debt-restructuring proposal is being discussed with creditors’ advisers under nondisclosure agreements, as previously reported by Caribbean Business, while efforts continue to achieve some sort of relief measure, such as a forbearance agreement, ahead of its more than $1.5 billion debt payment due July 1.
“At this point, it would be very difficult avoiding a default on July 1,” said Ambac’s Tavakoli.
Meanwhile, panelists talked about how Promesa could change the game significantly. The bill was scheduled for a floor vote in the U.S. House this week, and Ravitch senses there won’t be significant changes to it by the time it reaches a vote.
Moving to the Senate, that story could change, said CNE’s Marxuach, who warned about significant concerns from some GOP senators over some of the measure’s dispositions, particularly those related to debt restructuring.
Most panelists believe Promesa would help the island achieve much-needed fiscal stability with the restructuring tools provided assisting in reaching voluntary deals.
However, Rosselló was quick to point out his opposition to Promesa, and said he is tracing a different route to solve the island’s problem. That is the case of his proposed joint commission, “which essentially is a fiscal control board, but specifically for managing the debt restructuring,” he said.
While he opposes Promesa, he still believes federal government involvement is important moving forward, providing assistance in such areas as tax-revenue collection. He explained to attendees his plans to reduce the government’s size and spending, and how his plans are more suitable to solve the island’s problems.
In supporting Promesa and its debt-restructuring components, Ambac’s Tavakoli stressed the importance of Title VI, which provides for collective action. Aaron Stern, director at Fir Tree, noted how Title VI’s collective action could be “very helpful in achieving what the bulk of creditors want,” adding it could help, for instance, the GDB in closing down a restructuring deal for its $4 billion debt.
Meanwhile, Assured’s Frederico would rather see a voluntary process under Title VI, instead of following the path of Title III, where both Puerto Rico and the market could lose. Title III would allow for a court-ordered debt-restructuring process if the fiscal oversight board approves it.
The G25 believes the island needs an entity that can carry out politically difficult decisions, but done in a way where “we don’t have to wipe away our constitution,” Sosa said.
Marxuach said the board figure would need to intervene more than in other places, “especially with what we have seen during the past four years.”
Puerto Rico’s economy
While debt-restructuring and Promesa took center stage throughout the morning, the island’s economy — in free-fall for more than a decade — the lack of infrastructure investment and job creation were also brought to the conversation by some of the panelists, such as Soto and Ravitch.
“If the Puerto Rico economy doesn’t grow, there is no solution that would satisfy everyone,” Ravitch said.
As for infrastructure, Fir Tree’s Stern noted how the government could seek to monetize or privatize some of its assets, a key component of International Monetary Fund-like restructuring plans. This would in turn help Puerto Rico securities regain value.
He also called for a more detailed growth plan for the island’s economy. “If we take a haircut and that money goes directly to the economy, that’s good for us,” Stern said.