SEIU President Warns of Promesa Deficiencies After GDB Default
Says Law Doesn’t ‘Provide the tools’ to Cut Debt to a Sustainable Level
SAN JUAN — Concerns over how the Financial Oversight and Management Board (FOMB) for Puerto Rico is managing the restructuring process came up again for Service Employees International Union (SEIU) President Mary Kay Henry after the Government Development Bank (GDB) only had cash for 56 percent of the debt service payment due Feb. 20.
The GDB’s default comes only over year after the FOMB restructured the bank’s debt for which the fiscal entity didn’t use the contentious bankruptcy process established in Title III of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa). Instead, the bank remains the only entity to have completed the restructuring process through Title VI for consensual agreements.
Tuesday’s “press reporting of an Electronic Municipal Monitoring Access system (EMMA) filing notifying the market that a part of the Government of Puerto Rico is now unable to pay bondholders, even after restructuring under Promesa, provides concrete evidence of what SEIU and its members in Puerto Rico have been saying all along, ‘Promesa es Pobreza,’ or Promesa is Poverty,” Henry said referencing the article in Bond Buyer, which first reported the filing.
The SEUI president went on to argue that fiscal board members are not considering expert analysis that suggests Puerto Rico’s public debt should be cut to more than double the amount the FOMB is accepting.
“The Oversight Board has done no better in seeking deeper cuts. It too has chosen to reward Wall St. hedge funds at the expense of the people of Puerto Rico,” Henry stated.
GDB debt was reduced by 33 percent after its restructuring, a similar number to what the fiscal board is proposing for general obligation bonds in its Plan of Adjustment for the commonwealth.
The GDB has two debt service payments a year, one in February and one in August. Feb. 20 marked the third payment, which was supposed to be of just under $80 million, but the GDB Debt Recovery Authority only reported having $53.8 million available. After deducting $2.5 million for administrative costs and $8.1 for the fees and expenses reserve, the GDB could only pay $43.2 million. The remaining $36.4 million would be paid in the future.
Henry stressed that Promesa’s deficiencies are the problem and joined other voices that predict Puerto Rico is headed for a second bankruptcy process.
“SEIU warned Congress that such a result would happen because Promesa did not provide the tools Puerto Rico needed to cut its debt to a sustainable level and succeed in transforming itself,” the union president said, adding that the union “also warned Congress that a second restructuring proceeding would need to occur if Puerto Rico continues on its current course. Today’s announcement of this default event is proof that SEIU’s members are right.”