Puerto Rico Bondholders Give Promesa Mixed Reviews

CB Executive Editor Philipe Schoene Roura moderates a panel with, from left, José Rosenblum, Nader Tavakoli and Héctor Negroni.

CB Executive Editor Philipe Schoene Roura moderates a panel with, from left, Joseph Rosenblum, senior vice president of Alliance Bernstein LLP; Nader Tavakoli, president & CEO of Ambac; and Héctor Negroni, Co-CEO of Fundamental Advisors.

SAN JUAN – Economists and bondholders agreed Monday that the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) bill is a good start in taking the commonwealth government to recovery, but objected to several dispositions that would allow for a stay on claims and debt restructuring.

CB Executive Editor Philipe Schoene Roura moderates the bondholder panel.

Panel moderator Philipe Schoene Roura, executive editor, Caribbean Business

Their remarks were made in two panels that analyzed Promesa during the First Encounter of Bondholders, organized by Bonistas del Patio, which represents more than 60,000 local bondholders. Caribbean Business Executive Editor Philipe Schoene Roura moderated two of the panels and reporter Luis Valentín participated in one panel.

Héctor Negroni, Co-CEO of Fundamental Advisors, which has been involved in attempts to negotiate with Puerto Rico debt issuers, said he may challenge the provision that imposes a stay on legal claims imposed by Promesa.

“The stay on Promesa is a fairy tale. The stay stops you from pursuing your rights…,” he said.

Nader Tavakoli, president & CEO of Ambac, a monoline insurer that sued the government because of the debt defaults and clawbacks, or tapping into revenue streams originally destined for other debt, said if the federal fiscal-control board is imposed by Promesa, Ambac would also challenge the stays if the board does not do what it is supposed to do, such as shrinking the size of government.

In a panel titled “The Truth about the Territorial Control Board,” Javier Ortiz, a partner at Falcon Cyber Investments, said the three most important aspects of Promesa are the stay on lawsuits, the creation of a bicameral commission that would look into Puerto Rico’s economy and the appointment of the fiscal control board.

“Ultimately, the fact that something is happening is good,” he said.

Promesa was passed by the U.S. House of Representatives and is slated to be voted by the U.S. Senate as soon as this week.

Steven Hart, CEO of Williams & Jensen, a lobbying firm, said he had more problems lobbying in Washington, D.C., with the rank and file members of Congress instead of the leadership because of the general lack of knowledge about Puerto Rico. He noted problems with the Freedom Caucus, the conservative House Republican group, which did not know how Puerto Rico’s problems trickle into other financial problems.

The individuals who participated in another panel called “Promesa: Perspectives from the Creditor Camp,” made a list of the bill’s positive and negative points. They emphasized on the need to jumpstart the local economy to ensure the government complies with debt payments.

Look Thursday for the print edition of Caribbean Business for the full report.

CB Executive Editor Philipe Schoene Roura moderates a panel with, from left, CB reporter Luis J. Valentín, J. Steven Hart, CEO of Williams & Jensen, and Javier Ortiz, a partner at Falcon Cyber Investments.

CB Executive Editor Philipe Schoene Roura moderates a panel with, from left, CB reporter Luis J. Valentín; J. Steven Hart, CEO of Williams & Jensen; and Javier Ortiz, partner at Falcon Cyber Investments.




Emergency at Highways Could Prompt Legal Backlash

SAN JUAN — The Puerto Rico Highways & Transportation Authority (HTA) has joined the list of public entities operating under emergency periods, La Fortaleza announced Wednesday. Similar emergency periods have been declared for the Government Development Bank and the Puerto Rico Infrastructure Financing Authority.

While not imposing moratorium on HTA’s debt-service payments — which the government says are covered until next year — Gov. Alejandro García Padilla is suspending the remittance of certain funds that go toward paying debt obligations in a bid to guarantee continuity of essential services provided by HTA. The administration says HTA needs $25 million a month to do the latter, and an additional $150 million to pay down what it owes to its suppliers.

“The executive order is suspending the obligation of the HTA to transfer revenues to its bondholders from tolls and any other income received  and imposes a ‘stay’ in legal claims and of any kind,” La Fortaleza stated Wednesday.

Gov. Alejandro García Padilla addresses the press at La Fortaleza.

Gov. Alejandro García Padilla addresses the press at La Fortaleza.

The HTA is expected to meet in full roughly $240 million in debt service due July 1, but would do so by siphoning its reserve accounts.

A draft of an executive order to place the authority under the recently enacted moratorium law’s bounds had been in the works for days, as the Alejandro García Padilla administration seeks to shield the HTA from creditors’ legal recourse, sources told Caribbean Business.

However, such a move by the government could prompt some backlash in court, including a potential challenge to the moratorium law—about a month before more than $1.5 billion in debt-service payments hit the commonwealth.

Last week, Ambac Assurance Corp., a bond insurer with exposure to HTA debt, sued in federal court, calling for a receiver to be appointed at the public entity. Earlier this week, the monoline asked the court to freeze $100 million received from the 10-year extension to the PR-5 and PR-22 concession contract between HTA and Metropistas.

Yet, as of Tuesday, two sources said the local government had used these monies, with checks already out clearing against these funds. Last Friday, La Fortaleza announced it would use roughly $80 million of the $100 million received to pay down its outstanding debt with government suppliers, which are owed close to $2 billion, officials have said.

The HTA will get $18.2 million to pay its own suppliers, due about $155 million. The remaining $2 million covers “transaction-related costs,” La Fortaleza stated last Friday.

With La Fortaleza pulling the trigger on the executive order placing HTA under emergency period, it remains to be seen if it would effectively protect the public entity from Ambac’s legal action.

Puerto Rico’s moratorium law provides for a legal stay mechanism that seeks to shield public entities against creditors’ remedies, once they are placed under an emergency period. However, it is still uncertain whether it has a retroactive effect—for instance, a complaint such as Ambac’s, filed before the governor’s order calling for an emergency period.

For Justice Secretary César Miranda, it is a theoretical question that can’t be quite answered. “We haven’t seen it in practice. Obviously, it is one of the areas where we have theorized a lot—whether it could have the effect of stopping an action in course—and there is nothing solved yet, I must say,” he told Caribbean Business last week.

“It is a somewhat premature action because bondholders have their payments guaranteed until 2017, a fact Ambac admits in its lawsuit,” HTA Executive Director Carmen Villar stated last week.

Nevertheless, Ambac believes the public corporation’s ability to make subsequent payments “is very much in question.” The monoline’s jitters stem from its exposure to HTA’s $4 billion-plus debt, of which Ambac insures about $470 million. If the authority were unable to pay insured debt-service payments, the monoline would have to foot the bill.

In addition to a receiver and freezing up the $100 million that was deposited at the Economic Development Bank (EDB), according to the complaint, Ambac is calling for expedite discovery into the authority’s financials. It argues the authority has failed to meet its fiduciary and contractual duties to its creditors, questioning the “suspect timing” during which HTA and Metropistas, a local subsidiary of Spanish firm Abertis, recently agreed to extend the PR-22 and PR-5 concession contract.

The transaction represented “an effective financial alternative amid the commonwealth’s economic situation and the limited liquidity projections,” according to La Fortaleza.

Ambac seeks to prevent the Puerto Rico government from using said funds until the court decides on the HTA’s receivership matter. According to Ambac, the authority had notified the insurer that the $100 million was deposited at the Economic Development Bank (EDB).

Although it is not challenging the contract itself, Ambac has been after the use of said funds, arguing these “would likely be siphoned off by the commonwealth government” for purposes not related to the HTA.

For her part, Villar says that the insurer expects the commonwealth to use its limited cash to pay bondholders instead of ensuring essential services to Puerto Rico residents. “We cannot yield to untimely attacks of this nature that only intend to intimidate us,” she advised.




Ambac Seeks to Freeze Use of $100M from Metropistas Deal

SAN JUAN — On Monday, bond insurer Ambac asked a federal court to promptly order the Puerto Rico Highways & Transportation Authority (HTA) and the Economic Development Bank (EDB) to stop the transfer of $100 million received from the 10-year extension to the PR-5 and PR-22 concession contract with Metropistas.

The bond insurer is seeking to prevent the Puerto Rico government from transferring the Metropistas-deal proceeds out of the EDB, until Ambac’s request for a receiver at the HTA is considered. According to Ambac, the authority had notified the insurer that the $100 million disbursed by Metropistas was deposited at the EDB.

Nevertheless, sources have told Caribbean Business that these funds have already been used by the local government. Last Friday, La Fortaleza announced it would use roughly $80 million of the $100 million received to pay down its outstanding debt with government suppliers, which are owed about $2 billion, officials have said.

As for the HTA, it will only receive $18.2 million to pay down what it owes to its suppliers, totaling about $155 million. The remaining $2 million would go to pay for “transaction-related costs,” Friday’s statement further reads.

The transaction represented “an effective financial alternative amid the commonwealth’s economic situation and the limited liquidity projections,” according to La Fortaleza.

The monoline’s request for a temporary restraining order is based “upon information and belief, PRHTA and/or the EDB intend to imminently transfer the above described monies to the Commonwealth in violation of PRHTA’s contractual and fiduciary duties, resulting in immediate and irreparable harm to Plaintiff,” the document reads.

Ambac sued the HTA in federal court last week, alleging the crisis at the financially battered entity has reached a breaking point that calls for the appointment of a receiver and a deep look into HTA’s “questionable behavior,” according to the complaint. On Monday, the monoline amended its complaint, initially filed last week, whereby the EDB is now included as defendants along with the HTA.

A screengrab of the HTA's website.

A screengrab of the HTA’s website.

In calling for the establishment of a receiver at the HTA, Ambac argues the authority has failed to meet its fiduciary and contractual duties to its creditors, questioning the “suspect timing” during which HTA and Metropistas, a local subsidiary of Spanish firm Abertis, recently agreed to extend the concession contract of PR-22 and PR-5 to the tune of $115 million, of which $100 million has already been disbursed.

Although it is not challenging the contract itself, Ambac had focused on the use of said funds, arguing these “would likely be siphoned off by the commonwealth government” for purposes not related to the HTA. Following La Fortaleza’s statement detailing the use of the $100 million, Ambac decided to amend its complaint and seek temporary relief to freeze the transfer of those funds.

Moreover, the plaintiffs are also seeking an expedited discovery process, aiming to have the court schedule a hearing before the end of the month.

Responding to Ambac’s legal action, HTA Executive Director Carmen Villar stated last week that the insurer expects the commonwealth to use its limited cash to pay bondholders instead of ensuring essential services to Puerto Rico residents.

“It is a somewhat premature action because bondholders have their payments guaranteed until 2017, a fact Ambac admits in its lawsuit,” Villar stated.

While the HTA is expected to meet in full roughly $240 million in debt service due July 1—most likely by siphoning its reserve accounts—Ambac believes the public corporation’s ability to make subsequent payments “is very much in question.” By insuring about $470 million of HTA’s $4.5 billion debt, Ambac would have to foot the bill if the authority is unable to do so.

“We cannot yield to untimely attacks of this nature that only intend to intimidate us,” Villar said.




La Fortaleza Details Use of Funds in Metropistas Deal

SAN JUAN — On Friday afternoon, La Fortaleza announced how it will use the $100 million received by the Highways & Transportation Authority (HTA), after extending for 10 additional years the PR-5 and PR-22 concession contract with Metropistas.

The Alejandro García Padilla administration will use roughly $80 million to pay down its outstanding debt with government suppliers, which are owed about $2 billion, officials have said. The Puerto Rico Treasury Department would pay suppliers of essential services, following priority guidelines established late last year to control the disbursement of public funds amid the commonwealth’s cash crunch.

According to La Fortaleza, these funds will address “citizens’ urgent needs,” such as medical services and medicines, food, nursing and abused-children homes, therapists, special education, transportation, cleaning of schools and hospitals, among others.

As for the HTA, it will only receive $18.2 million to pay down what it owes to its suppliers, totaling about $155 million. The remaining $2 million would go to pay for “transaction-related costs,” Friday’s statement further reads.

The announcement comes mere days after municipal bond insurer Ambac sued the HTA in federal court, calling for the establishment of a receiver at the public corporation. The monoline is questioning the “suspect timing” of the recent transaction between HTA and Metropistas, a local subsidiary of Spanish firm Abertis, to the tune of $115 million, of which $100 million was already disbursed to the government.

Although Ambac is not challenging the contract itself through its legal action, it is calling into question the use of said funds, arguing these “would likely be siphoned off by the commonwealth government” for purposes not related to HTA.

La Fortaleza

La Fortaleza

La Fortaleza stated Friday the transaction represented “an effective financial alternative amid the commonwealth’s economic situation and the limited liquidity projections.”

As for Ambac’s lawsuit, HTA Executive Director Carmen Villar stated Thursday that the insurer pretends that the commonwealth uses its limited cash to pay bondholders instead of ensuring essential services to Puerto Rico residents.

“It is somewhat a premature action because bondholders have their payments guaranteed until 2017, a fact Ambac admits in their lawsuit,” said Villar. “We cannot yield to untimely attacks of this nature that only intend to intimidate us.”

While the HTA is expected to meet in full roughly $240 million in debt service due July 1—most likely by siphoning its reserve accounts—Ambac believes the public corporation’s ability to make subsequent payments “is very much in question.” By insuring about $470 million of HTA’s $4.5 billion debt, Ambac would have to foot the bill if the authority is unable to do so.

The monoline says the HTA has reached a breaking point that calls for the appointment of a receiver and a deep look into the authority’s “questionable behavior” during the past year, according to the lawsuit. In calling for the establishment of a receiver, the monoline argues that HTA has failed to meet its fiduciary and contractual duties to its creditors.

As previously reported by Caribbean Business, before announcing the use of the $100 million, La Fortaleza dodged a request made by the Government Development Bank (GDB) to have these funds transferred to the cash-strapped bank, before partially defaulting on its May 2 debt payment.

According to the island’s public-private partnership law, which governs the arrangement between HTA and Metropistas, the GDB and the Office of Management & Budget issued a recommendation to the executive branch over the use of proceeds resulting from the transaction.

According to Ambac’s lawsuit, the monoline asked the HTA on April 29 whether the $100 million would be used for the benefit of the authority, to which the counsel for HTA replied that the funds were currently held at the Economic Development Bank in the authority’s name.

Ambac also argues that HTA’s latest actions, while failing to disclose financial information, “underscore the need for immediate relief from this Court in the form of (1) expedited discovery so that Plaintiff can ascertain the full extent of HTA’s malfeasance; and (2) the appointment of a provisional receiver over HTA to avoid further irreparable harm to HTA, its bondholders, and Plaintiff.”




Puerto Rico Highways Authority Responds to Ambac’s Lawsuit

SAN JUAN — Two days after municipal bond insurer Ambac sued the Puerto Rico Highways & Transportation Authority (HTA) in federal court, calling for the establishment of a receiver at the public corporation, the entity’s executive director, Carmen Villar, stated that the insurer pretends that the commonwealth uses its limited cash to pay bondholders instead of ensuring essential services to Puerto Rico residents.

“It is somewhat a premature action, because bondholders have their payments guaranteed until 2017, a fact Ambac admits in their lawsuit,” stated Villar.

While the HTA is expected to meet in full roughly $240 million in debt service due July 1—most likely by siphoning its reserve accounts—Ambac believes the public corporation’s ability to make subsequent payments “is very much in question.” By insuring about $470 million of HTA’s $4.5 billion debt, Ambac would have to foot the bill if the authority is unable to do so.

“We cannot yield to untimely attacks of this nature that only intend to intimidate us. The [Alejandro García Padilla] administration will continue defending Puerto Ricans from private interests such as these,” Villar added.

villar

HTA Executive Director Carmen Villar

Ambac sued the HTA in federal court on Tuesday, alleging that the crisis at the financially battered entity has reached a breaking point that calls for the appointment of a receiver and a deep look into HTA’s “questionable behavior” during the past year, according to the lawsuit.

In calling for the establishment of a receiver, the monoline argues that HTA has failed to meet its fiduciary and contractual duties to its creditors. For instance, the insurer is questioning the “suspect timing” during which HTA and Metropistas, a local subsidiary of Spanish firm Abertis, recently agreed to extend the concession contract of PR-22 and PR-5 to the tune of $115 million, of which $100 million has been already disbursed.

Although it is not challenging the contract itself, Ambac is focused on the use of said funds, arguing these “would likely be siphoned off by the commonwealth government” for purposes not related to HTA.

As previously reported by Caribbean Business, La Fortaleza has yet to announce the use of the aforementioned revenues, while dodging a request made by the Government Development Bank (GDB) before partially defaulting on its May 2 debt payment. According to the island’s public-private partnership law, the GDB and the Office of Management & Budget issue a recommendation to the executive branch over its use.

On April 29, Ambac asked HTA whether the $100 million would be used for the benefit of the authority, to which the counsel for HTA replied that the funds were currently held at the Economic Development Bank in the authority’s name.

Ambac also argues that HTA’s latest actions, while failing to disclose financial information, “underscore the need for immediate relief from this Court in the form of (1) expedited discovery so that Plaintiff can ascertain the full extent of HTA’s malfeasance; and (2) the appointment of a provisional receiver over HTA to avoid further irreparable harm to HTA, its bondholders, and Plaintiff.”

The bond insurance company is represented by Puerto Rico law firm Ferraiuoli LLC, and New York-based Milbank, Tweed, Hadley & McCloy LLP.

Earlier this year, Ambac and Assured Guaranty, another bond insurance company with exposure to Puerto Rico debt, filed suit against the commonwealth for redirecting pledged revenues, known as “clawbacks,” to pay for public debt, a move the monolines deem as illegal and invalid under the U.S. Constitution. Gov. Alejandro García Padilla’s clawback order covers one of HTA’s revenue sources for the repayment of its debt.




Bond Insurer Demands Receivership for Highways Authority

SAN JUAN — Bond insurer Ambac sued the Puerto Rico Highways & Transportation Authority (HTA) in federal court on Tuesday. The suit alleges that the crisis at the financially battered entity has reached a breaking point that calls for the appointment of a receiver and a deep look into HTA’s “questionable behavior,” according to the document.

highwayIn calling for the establishment of a receiver, Ambac argues that the HTA has failed to meet its fiduciary and contractual duties to its creditors. For instance, the insurer is questioning the “suspect timing” during which HTA and Metropistas, a local subsidiary of Spanish firm Abertis, recently agreed to extend the concession contract of PR-22 and PR-5 to the tune of $115 million, of which $100 million has been already disbursed.

Although it is not challenging the contract itself, Ambac is focused on the use of said funds, arguing these “would likely be siphoned off by the commonwealth government” for purposes not related to HTA.

As previously reported by Caribbean Business, La Fortaleza has yet to announce the use of the aforementioned revenues, while dodging a request made by the Government Development Bank (GDB) before partially defaulting on its May 2 debt payment. According to the island’s public-private partnership law, the GDB and the Office of Management & Budget issue a recommendation to the executive branch over its use.

On April 29, Ambac asked HTA whether the $100 million would be used for the benefit of the authority, to which the counsel for HTA replied that the funds were currently held at the Economic Development Bank in the authority’s name.

Ambac also argues that HTA’s latest actions, while failing to disclose financial information, “underscore the need for immediate relief from this Court in the form of (1) expedited discovery so that Plaintiff can ascertain the full extent of HTA’s malfeasance; and (2) the appointment of a provisional receiver over HTA to avoid further irreparable harm to HTA, its bondholders, and Plaintiff.”

While the HTA is expected to meet in full roughly $240 million in debt service due July 1—most likely by siphoning its reserve accounts— Ambac believes the public corporation’s ability to make subsequent payments “is very much in question.” By insuring about $470 million of HTA’s $4.5-billion debt, Ambac would have to foot the bill if the authority is unable to do so.

The bond insurance company is represented by Puerto Rico law firm Ferraiuoli LLC, and New York-based Milbank, Tweed, Hadley & McCloy LLP.

Earlier this year, Ambac and Assured Guaranty, another bond insurance company with exposure to Puerto Rico debt, filed suit against the commonwealth for redirecting pledged revenues, known as “clawbacks,” to pay for public debt, a move the monolines deem as illegal and invalid under the U.S. Constitution. Gov. Alejandro García Padilla’s clawback order covers one of HTA’s revenue sources for the repayment of its debt.




Ambac Sends Letter to Stockholders

SAN JUAN – Ambac Financial Group Inc., a holding company whose subsidiaries, including Ambac Assurance Corp. (AAC), provide financial guarantees and other services, released Monday a letter to stockholders from Ambac’s board, updating them on matters related to the 2016 annual meeting of stockholders.

nader tavakoli Ambac

Ambac President and CEO Nader Tavakoli

Below is text pertaining to Puerto Rico in the letter:

  • Proactively confronted the situation in Puerto Rico, one of our most distressed legacy exposures and a continued challenge for the Company that has adversely impacted our stock price*. Ambac has been actively involved in negotiations and discussions, educating leaders in Washington and San Juan about the perils of Chapter 9 and has made substantial progress in these efforts and believes that our insistence on establishing an independent control board with meaningful authority will be part of any solution for the Commonwealth, as reflected in recent proposed federal legislation.
  • In November 2015, through a Company led initiative and at no cost to Ambac, secured the cancellation of $228.5 million in net par of Puerto Rico Highways and Transportation Authority (“HTA”) bonds, that were pledged as collateral to the GDB [Government Development Bank], equating to approximately $493 million of lifetime principal and interest. This transaction is emblematic of our focused, active, approach to risk and loss mitigation across our portfolio, and with respect to Puerto Rico in particular.

“Also, Mr. [Nader] Tavakoli [Ambac president and CEO] has been diligently participating in the negotiations and deliberations in Washington and San Juan related to determining the appropriate solutions to alleviate the financial difficulties in Puerto Rico, a jurisdiction to which Ambac has substantial legacy economic exposure.”  

*During 2015 Ambac’s stock price exhibited a 90.5% correlation with The Puerto Rico General Obligation (“GO”) Bonds 8% of 2035, which are used as a benchmark for Puerto Rican municipal bonds (source:Bloomberg)




Puerto Rico Investment Summit Features New Expert Panel

SAN JUAN – The powerhouse tax-incentive information, investment opportunity and networking event, the Puerto Rico Investment Summit, has assembled a new panel of experts for its attending executives, attorneys, CPAs, institutional investors, investment bankers and private equity professionals.

The Feb. 11 and 12 symposium will be bringing together such high-profile figures as Nader Tavakoli, president, CEO and executive chairman of Ambac Assurance; Lisa J. Donahue, AlixPartners’ managing director and chief restructuring officer for the Puerto Rico Electric Power Authority; and Jim Millstein, founder and CEO of Millstein & Co., and restructuring adviser to Puerto Rico. The discussion will be moderated by Philipe Schoene Roura, executive editor of Caribbean Business.

PR Investment Summit LogoThe two-day investor conference’s lineup of presenters and panelists includes John Paulson, president and portfolio manager of Paulson & Co., whose acquisitions and renovations include the St. Regis Bahía Beach Resort, the Condado Vanderbilt and La Concha hotels in San Juan, and other properties under development. Joining him will be Michael Tennenbaum, co-founder and senior managing partner emeritus of Tennenbaum Capital Partners, who has chosen Puerto Rico as a business destination.

Also scheduled to speak is Putnam Bridge’s Nicholas Prouty, who purchased one of the largest marinas in the Caribbean as well as several apartment complexes in San Juan. Miguel Ferrer, chairman of Ferrer Faas & Co. and Latin Media House and former chairman of UBS-Puerto Rico, will be speaking about Act 185, the private equity fund law, and how it, along with Act 20, can generate capital and help create jobs in Puerto Rico. He will be part of a panel discussion that includes CPA Gabriel Hernández of the BDO Puerto Rico accounting firm.

The summit’s second day will open with a keynote by businessman, attorney and former New York City Mayor Rudolph Giuliani, followed by breakout sessions on such topics as science, technology, R&D, aerospace, infrastructure projects, real estate, entertainment events, and legal and CPA services for export.

Previous iterations of the platform for investors, executives, government and private companies have been attended by more than 1,000 people, featuring presentations by more than 100 public and private companies.

Online: Puerto Rico Investment Summit




Bond Insurers Call for Federal Fiscal Oversight, No Bankruptcy Regime for Puerto Rico

SAN JUAN – In a letter sent Friday to House Speaker Paul Ryan (R., Wis.), the Association of Financial Guaranty Insurers (AFGI) states that providing a bankruptcy regime for Puerto Rico to restructure its debt obligations is not the best path toward solving the island’s fiscal and economic crisis.

Moreover, AFGI members “feel strongly” that Puerto Rico needs independent fiscal oversight, which would best be provided by a “federally mandated control or oversight board authorized to implement the fiscal and economic reforms that the Commonwealth requires,” the letter says.

AFGI members include Ambac Assurance Corp., Assured Guaranty, Financial Guaranty Insurance Co., National Public Finance Guarantee Corp., MBIA Insurance Corp. and Syncora Guarantee Inc., insuring among them roughly $14 billion of Puerto Rico’s $70 billion debt.

The island’s future return to capital markets and economic growth “would be jeopardized were Puerto Rico incentivized to cease consensual debt restructuring negotiations in favor of nonconsensual restructurings under a bankruptcy regime or other new laws,” according to the letter.

While supporting U.S. Treasury Secretary Jacob Lew’s view on Puerto Rico’s need for independent fiscal oversight, AGFI believes the federal agency should also encourage consensual negotiations instead of a bankruptcy regime. They highlighted the Puerto Rico Electric Power Authority’s (Prepa) recently struck restructuring support agreement with a majority of its creditors, as an example that shows “consensual restructuring negotiations work.”

According to AFGI, the delay in debt-restructuring talks between Puerto Rico and its creditors, outside the Prepa case, “brings into question the Commonwealth’s objectives and raises concerns about coordinated efforts by the Commonwealth to delay the public corporations’ individual restructuring processes.”

They add it seems like Puerto Rico has “prioritized creating a ‘crisis narrative,’ as the commonwealth focuses on achieving bankruptcy instead of working toward a consensual solution with its creditors.

“Lew should use his authority to bring Puerto Rico’s government officials and creditors to the table to negotiate a restructuring that is fair to all parties,” the letter reads, adding that bond insurers are prepared to engage in talks with the commonwealth.

The García Padilla administration is banking on congressional action during the first half of 2016 in a bid to avoid Puerto Rico’s looming debt cliff come summertime. Insurers Ambac, Assured and Syncora have already sued the commonwealth over García Padilla’s recent fiscal maneuver to redirect revenue sources that were pledged to cover public corporation debt, a mechanism known as “clawback.”

During a visit to the island earlier this week, Treasury’s Lew once again urged for prompt congressional action on Puerto Rico’s fiscal crisis, namely providing a bankruptcy regime along with fiscal oversight that respects the commonwealth’s self-governance.

“Retroactively abrogating contractual and constitutional rights underlying Puerto Rico securities owned by U.S. taxpayers means ignoring the rule of law, which is the foundation of the $4 trillion U.S. municipal bond market,” AFGI states in its letter. “Bankruptcy of Puerto Rico municipal issuers would raise the cost or otherwise impair capital market access for thousands of U.S. municipalities seeking to sell municipal bonds under a cloud of uncertainty regarding bondholder rights. And to what end? Bankruptcy will cost U.S. taxpayers without providing meaningful benefit to Puerto Rico’s residents.

“The rush to bankruptcy urged by the Commonwealth should be discouraged,” AFGI states.




Judge to Consolidate Bond Insurer Lawsuits Against Puerto Rico

SAN JUAN – Federal Judge Gustavo Gelpí has consolidated several lawsuits filed over Puerto Rico’s debt to avoid inconsistent rulings and save time and money.

“Both cases assert most of the same claims,” including the same defendants, Gelpi said in a court filing.

Both cases will now go before U.S. District Judge José Fuste in Puerto Rico.

Financial Guaranty Insurance Co., or FGIC, sued Puerto Rico on Tuesday for diverting $164 million in revenue streams meant to pay the island’s debt through a clawback mechanism. The firm insures about $1.2 billion in debt. The lawsuit will be consolidated with another one brought by two other bond insurers, Assured Guaranty and Ambac Financial, which also argues that the so-called clawbacks violate the U.S. Constitution and federal law.

The lawsuits came after the governor signed executive orders in November and in December implementing the clawback mechanism established by the constitution to redirect revenues earmarked for debt in certain public corporations in order to pay constitutionally guaranteed debt and other essential services.

After learning about the FGIC lawsuit, Gov. Alejandro García Padilla insisted that the government will prevail in court. The clawbacks are permitted by the commonwealth’s constitution, which was ratified by Congress.   

By Eva Lloréns Vélez