Puerto Rico Briefs Congress on Debt-Exchange Plan, Calls for Broad Restructuring Regime

SAN JUAN — Representatives of the Puerto Rico government briefed Congress staffers for about two hours on Friday over Gov. Alejandro García Padilla administration’s latest plan to restructure a large chunk of its $70 billion debt, while returning to much-needed fiscal stability and economic growth.
Three government officials sought to make clear that Puerto Rico needs to restructure its debt, and are asking Congress to help in making it an orderly process by providing the commonwealth with access to a broad debt-restructuring regime.
Government Development Bank (GDB) President & Chairwoman Melba Acosta, along with Puerto Rico’s lead restructuring advisers Jim Millstein, chairman of Millstein & Co., and Richard Cooper, partner at law firm Cleary Gottlieb, went over the recently revised debt-restructuring proposal — a voluntary debt exchange offer to creditors that was recently made public. Also discussed was the commonwealth’s updated Fiscal & Economic Growth Plan, which now states a gloomier fiscal and economic picture for the island during the next decade.
“We’ve ran out of magic tricks. We have real default ahead of us if we can’t cut a deal with our creditors,” Millstein said.
The commonwealth has been lobbying hard to achieve access to a restructuring regime, particularly under Chapter 9 of the U.S. Bankruptcy Code. But the latter would only cover public corporations — and not all types of commonwealth debt such as general obligations (GOs) — so officials believe a broader restructuring regime is needed from Congress.
“Having a comprehensive restructuring regime that includes the commonwealth and all its tax-supported debt is quite essential,” said Cleary Gottlieb’s Cooper, hinting that Chapter 9 although useful, could fall short.
The Obama administration, through the federal Treasury Department, has already recommended Congress to provide Puerto Rico with a broader restructuring regime — a ‘super Chapter 9’ — exclusive to U.S. territories. In fact, a couple of blocks away from Capitol Hill was Treasury’s adviser on Puerto Rico matters, Antonio Weiss, supporting once again their proposed debt-restructuring regime during a forum held by a D.C.-based nonprofit.    
Yet, Republicans have remained skittish even over just granting Chapter 9 access for Puerto Rico, not to mention a broader, similar regime.
The three officials argued on Friday that with the government’s first offer to creditors already on the table, successfully moving forward could be particularly difficult if no legal restructuring regime is in place. After all, the interdependence of all the different credits makes Puerto Rico a tough nut to crack.
“This is as complicated a structure I have ever seen in the 30 years I’ve been doing this,” Millstein conceded.
“There are these embedded intercreditor conflicts that no matter what we do, even if the commonwealth weren’t to initiate lawsuit, lawsuits would be initiated by one creditor class against another,” said Cooper, adding that a stay on lawsuits against Puerto Rico is also needed as talks with creditors continue.
For his part, Millstein warned there could be as many as “11 different judges eventually in charge of this if we don’t have a central forum within which to resolve these issues,” which could take “conservatively, five years of litigation.” Moreover, he noted how a restructuring regime could also do away with potential holdout creditors, “as a majority of creditors supporting a deal can make that deal binding on a minority…eliminating any of the holdouts.”
As for the potential establishment of a federal fiscal control board on Puerto Rico, the topic of the most recent congressional hearing over the island’s fiscal and economic matters, Cooper said enhanced oversight would be demanded by creditors.
Meanwhile, Millstein called for a balance in any solution presented by Congress. “There’s going to have to be a balance…between sovereignty of the federal government and bringing the extraordinary bankruptcy power that the federal government has for the benefit of the commonwealth, with the sovereignty that Congress gave the commonwealth to manage [its own affairs],” he said.
The commonwealth is banking on congressional action during the first months of the year as it tries to avoid additional defaults amid a steeper debt-service schedule come this summer. House Speaker Paul Ryan (R., Wis.) has said the lower chamber aims to come up with a solution to the Puerto Rico issue before the end of March.
Caribbean Business

Conflicting Bankruptcy Perspectives Discussed At D.C. Debt Forum

SAN JUAN — Puerto Rico needs a restructuring plan for “all of its debt” through a special legislative act tailored to territories along with a federal control board that does not intervene with the island’s autonomy, to overcome the fiscal crisis, Antonio Weiss, a counselor to the Secretary of the U.S. Treasury, said.

He made his remarks at a forum organized Friday by the Bipartisan Policy Center in Washington D.C.
Weiss reiterated that Puerto Rico will run out of money in June but that there is a need for action “now” to address liquidity problems.

However, Héctor Negroni, the co-founder and co-chief Executive Officer for Fundamental Credit Opportunities, said allowing Puerto Rico to access bankruptcy protection will severely affect the muni-market and create uncertainty. Meanwhile, former Washington Mayor Anthony Williams said the idea of a federal control board to oversee the island’s finances “is not the end of democracy” for the island and that it worked well for Washington D.C. He stressed that Puerto Rico may have to give up some of its powers to get out the fiscal crisis much like a patient who is sick and is forced to change his lifestyle.

David Skeel, a professor of Corporate Law at the University of Pennsylvania Law School, said that for reasons “not clear to everyone” the island was excluded from the Bankruptcy Law in 1984 as the law says it is a state for every purpose except for Chapter 9 bankruptcy protection. Puerto Rico enacted the Debt Enforcement and Recovery Act in 2013, which was struck down by two federal courts as unconstitutional after ruling that it was preempted by the federal bankruptcy statute. The issue is now before the U.S. Supreme Court.

“My suspicion is that this won’t be decided until the summer and by that time, it will be too late,” Skeel said.
He noted that the Republican dominated Congress has been leery of providing debt restructuring to Puerto Rico because “it is a slippery slope for all states…Next thing you know we have Illinois,” he said. However, he noted that the same kinds of arguments Republicans made to grant bankruptcy protections to banks, also apply to Puerto Rico.
“It is a fix for a disaster,” he said.

Weiss said there is a broad consensus that there is a crisis and a restructuring is needed for the entire $70 billion debt owned by Puerto Rico, which is equivalent to its gross national product.

Puerto Rico has 18 different issuers, 20 creditor classes and has already defaulted on four types of debts.

“The debt is unsustainable…Any solution has to look at the entire debt,” he said, adding that the “race to court” has already begun. Puerto Rico was sued by two insurance companies after recently defaulting in some of its debt.
Weiss said that the restructuring plan for Puerto Rico does not have to be modeled after Chapter 9 of the federal bankruptcy law but “a special legislative act tailored for territories. This is not cities or states…It is unrealistic to try to avoid a restructuring.”

He also insisted that a federal fiscal oversight board for Puerto Rico “needs to leave self-governance in place.”
Weiss reiterated that the fiscal crisis in Puerto Rico is also a humanitarian crisis.

While Negroni insisted on the repercussions of a debt restructuring in the municipal market, which helps fund infrastructure projects across the United States, Skeel reminded him that Puerto Rico is not paying its debt already and that a default could be worse.

Weiss said that a decision has to be made between “an orderly restructuring” and a “disorderly restructuring” that will take 10 years for Puerto Rico to overcome.

On the other hand, Weiss and Williams believe Puerto Rico should use the current juncture to address its current political status by asking for parity in federal funds for health and the earned income credit. Negrón said it was “a lot to ask right now” from Congress and that the island should focus on its immediate needs.

Negroni also said Puerto Rico also needs to “reset its mentality” for certain things such as its tolerance for the underground economy, something that would normally not be tolerated in the United States.


Caribbean Business

CBP, HSI Seize 86 Pounds Of Cocaine Concealed Inside Boat Hull

FAJARDO — U.S. Customs and Border Protection (CBP) and U.S. Immigration and Customs Enforcement (ICE) Homeland Security Investigations (HSI ) seized 86 pounds (39 kilos) of cocaine found Wednesday concealed inside the hull of a 26 foot boat. The estimated value of the cocaine is $1 million.

“Our collective effort and resolve are key to secure the Caribbean borders from attempts to smuggle narcotics into the region,” stated Johnny Morales, Director of Air Operations at the CBP Caribbean Air and Marine Branch.

A CBP Air and Marine Operation Interceptor vessel along with HSI agents held for inspection a vessel that was towed from the island municipality of Culebra, some 23 miles off the eastern coast of Puerto Rico, to the Puerto Chico Marina, in Fajardo. During the inspection a K-9 agent from CBP alerted of the presence of narcotics inside the boat.

A CBP Field Operations X-ray inspection of the boat revealed a hidden compartment within the hull and under the starboard deck area, where 46 brick shaped objects were found. A powdery substance tested positive to cocaine.
HSI special agents assumed custody of the boat and contraband for further investigation.

CBP has the legal authority to conduct border searches of persons, merchandise or conveyances that cross or are about to cross an international border – without a warrant or probable cause. Border search authority includes inbound, in-transit and outbound searches.

None of the law enforcement agencies involved in the operation reported any arrests related to the seizing of the contraband.

Caribbean Business

More Canadians Flying To The Caribbean

SAN JUAN — Air Canada’s passenger traffic to the Caribbean is continuing to grow, indicating that more Canadians are vacationing in the region.

The carrier has announced continued growth to the region in January, with an 8.1 percent year-over-year increase in revenue passenger miles to 735 million.

Passenger load factor, which measures the percentage of “filled seats,” increased by 1.2 percentage points to 86.8 percent.

Air Canada reported a record load factory in January of 80.1 percent.

According to the Caribbean Tourism Organization, more than 3.5 million Canadians visit the Caribbean every year.

The No 1 destination for Canadians is Cuba, followed by the Dominican Republic and Jamaica.

“In January, Air Canada generated greater traffic in all markets served led by Atlantic, Pacific, Latin American and Caribbean markets in which we also achieved increases in load factors from the previous year,” said Calin Rovinescu, the carier’s president & CEO.

“These strong results underscore the effectiveness of our commercial strategy with its focus on international growth, aggressive expansion of Air Canada rouge in leisure markets, focus on sixth freedom traffic to feed Canadian hubs, Boeing 777 aircraft seat densification, introduction of a Premium Economy product, A++ Joint Venture with Star Alliance partners and regional airline diversification,” he said in a statement.


Caribbean Business

Zaragoza Accepts Blame For Delay In Audit Of Government Finances

SAN JUAN — Treasury Secretary Juan Zaragoza admitted Thursday that the reason the accounting firm KPMG has not finished an audit into the government’s finances for 2014 is because the government has failed to give the company all the necessary documents to do so.  

Zaragoza made the admission during questioning in the federal trial involving a lawsuit filed by Walmart challenging the constitutionality of the alternative minimum tax it will pay on goods purchased from foreign affiliates.  The Secretary did not provide explanations for the delay. 

One of the documents the government has not submitted to KPMG is the final version of a “going concern memo,” a document that says that a business or entity has the intention or can continue to operate in the forseeable future.

A KPMG executive testified earlier this week that a draft of the “going concern memo” received in January casted doubt on the government’s ability to operate.

Walmart lawyer, Neal Manne, asked Zaragoza Thursday about a quote from the memo that said “There is significant doubt about Puerto Rico’s ability to continue as a going concern.”

“Do you agree?” Manne asked.  “Yes,” Zaragoza replied.

The memo also said there was substantial doubt the Government Development Bank could continue as a going concern. Zaragoza said that in the event the GDB loses liquidity, he is the one who must ask a court to put the GDB in receivership.  

Caribbean Business

PBA Director Resigns From Post After Approving Huge Bonuses to Employees

SAN JUAN – The executive director of the Public Buildings Authority (PBA), Angel L. González Carrasquillo, has resigned from his post, effective Friday, for alleged personal and professional reasons.

However, sources from the agency told Caribbean Business that González Carrasquillo got into hot water with the central administration after authorizing huge payments in Christmas bonuses to nearly 200 managerial workers that were questioned by La Fortaleza. The PBA has a $40 million debt.

González Carrasquillo tendered his resignation about two weeks ago. In a letter sent to employees, he urged them to continue to operate as a team.

“First of all, I want to thank you for all the cooperation and confidence placed in me over the past two years. These years have been full of intense challenges and obstacles that have required a lot of effort, dedication and commitment from all those who work in the Public Buildings Authority. However, with great pride I can say that thanks to God, teamwork, commitment from all unionized, managerial and personnel in positions of trust, the work was carried out,” he said.

He added that “the actions that were started will allow the PBA to achieve economic stability and continue building and working for a better Puerto Rico for all.”

U.S. Supreme Court to Hold Hearing in March Over Puerto Rico’s Bankruptcy Law

SAN JUAN – On March 22, the U.S. Supreme Court will listen for an hour to oral arguments over the validity of a bankruptcy law that was enacted by the Puerto Rico Legislature in 2014, but struck down so far at the federal court district and appellate levels, the top federal court announced Friday.
A spokeswoman for the Puerto Rico Justice Department confirmed to Caribbean Business the hearing’s date on the court’s schedule.

The court decided on Dec. 4 to grant the Puerto Rico government’s petition to review the enforceability of the Puerto Rico Public Corporation Debt Compliance & Recovery Act, which seeks to provide a bankruptcy regime for the island’s battered public utilities, which account for a third of Puerto Rico’s roughly $70 billion in debt. A decision by the U.S. Supreme Court on the matter is expected by June.

With no access to a legal framework to restructure its debts under federal law, namely Chapter 9 of the U.S. Bankruptcy Code, the commonwealth attempted in 2014 to establish its own municipal bankruptcy mechanism with the Recovery Act, but it was challenged right away after its enactment by a group of bondholders.  

The Alejandro García Padilla administration is posing the following question to the U.S. Supreme Court: “Whether Chapter 9 of the federal Bankruptcy Code, which does not apply to Puerto Rico, nonetheless preempts a Puerto Rico statute creating a mechanism for the Commonwealth’s public utilities to restructure their debts.” Creditor groups are asking whether federal law preempts the Recovery Act, and whether the 1984 amendment “precluding Puerto Rico from using Chapter 9 of the Code allows Puerto Rico to enact its own version of Chapter 9.”

In addition to moving on the U.S. Supreme Court front, the commonwealth government is also banking on congressional action, particularly over access to Chapter 9, during the first semester of the year, as it tries to avoid additional defaults amid a debt-service schedule that becomes steeper this summer. House Speaker Paul Ryan (R.,Wis.) has said the lower chamber aims to come up with a solution to the Puerto Rico issue before the end of March, but it is yet to be known whether the Republican-controlled Congress will provide the commonwealth with debt-restructuring tools in time.


DACO Complies with Statistics Institute’s Order to Publish Gasoline Wholesalers’ Prevailing Prices

SAN JUAN – Mario Marazzi Santiago, executive director of the Puerto Rico Statistics Institute, confirmed Friday that the Puerto Rico Consumer Affairs Department (DACO by its Spanish acronym) reinitiated the daily disclosure of gasoline wholesalers’ daily prevailing prices on its website, as previously requested.

 With the move, DACO complies with the resolution the Institute’s board of directors recently approved requesting such action.

 “For the Institute, it was crucial for DACO to reinitiate the daily disclosure of gasoline wholesalers’ prevailing prices, to ensure transparency and the updating of gasoline wholesalers’ statistics contained in the Statistics Inventory of Puerto Rico, for all the energy sectors and local citizens,” Marazzi Santiago said.

 For several years now, DACO has compiled the retail prices of gasoline sales, as reported by each gasoline wholesaler, in compliance with Price Regulation 45.

 Since then, DACO has been releasing this information on a daily basis, through a statistical report called “Prevailing Prices of Gasoline Wholesalers.”

 However, on July 10, 2015, DACO made the determination to no longer release the statistical report.

 “We congratulate DACO Secretary [Nery Adames] for recognizing the importance of complying with the law and defending the interest of consumers. The nondisclosure of the prevailing prices of gasoline wholesalers allowed wholesalers to sell their gasoline to various retailers at different prices, which goes against the best interest of consumers,” Marazzi Santiago indicated.

PDP Agrees With Stiffer Regulations On Campaign Donations

SAN JUAN – The chairman of the transition committee for Popular Democratic Party president David Bernier supported amendments proposed by Electoral Comptroller Manuel Torres that would stiffen laws related to political campaign donations.
PDP Rep. Jesus Santa said Bernier has voluntarily already put in place controls over the donations he is receiving. 
Among the proposed amendments, Torres said he wants to limit to around 30% the amount political parties can get in anonymous campaign donations, which are those that are  $200 or less, because he said donors can contribute such amounts as many times as they want. 
The move comes after the government was rocked by a scandal involving influence peddling by an important PDP donor that resulted in the arrests of 10 people.  
Santa said Bernier has already implemented several measures to ensure transparency in donations to his campaign.
These include having an internal audit committee to ensure that all fundraising activities meet the strict parameters established by the law and to safeguard the process of transparency governing their election campaign; facilitating a control sheet for collective political activities that summarizes the revenues during the activity, the organizer’s name and details of the donor; reducing to half the amount of cash that will be raised under Governor David Bernier 2016 Committee; and requiring the information from donors for all contributions made in cash that are above $100 and not $200 as it is stated in the law, according to a statement.  

By Caribbean Business

Toa Alta Municipal Government at fault on cemetery and bus station projects

SAN JUAN – The city of Toa Alta received $10 million in federal loans about eight years ago, to build a cemetery and bus station that were never built. Local authorities claim to have no documentation about the projects because copies of the paperwork are being held by contractors. 
The contractors say they’re not cooperating because they were stiffed on the payments and are having disputes with the city, according to a report from the Office of the Inspector General featured in the Daily Caller. 
In 2007, the Department of Housing and Urban Development gave the Municipality of Toa Alta $2 million in community development grants to build a mausoleum. The money was required to be spent by 2010. Construction has not started, because of “problems accessing the project site,” which is on land that had long been   by the local government itself.
Another $6 million-plus was for construction of a four-story building containing parking spaces and a bus terminal, also distributed in 2007 and to be spent by 2010, and with no changes permitted. But when authorities checked the site in 2015, they found an abandoned frame of a five-story building on the site. Puerto Rico is demanding more federal money to complete the expanded project.
The report also found that part of the money was used for operational expenditures of the city. 
The federal money was supposed to be a loan, but HUD secured no collateral before disbursing the funds, leaving the department with little leverage to prevent an entity from walking away with the money, according to a report.
“The records maintained did not properly account for program income, accounts receivable, and capital assets,” the IG audit found. “The municipality did not maintain a general ledger for the Section 108 program. The accounting record maintained was a check register that contained incorrect balances and transactions that were not recorded.”
HUD’s Section 108 program sends money to local governments for projects for the needy but governments often use it to build general amenities, saying that low-income people benefit from having them nearby. Toa Alta spent some of the money on completely unrelated purposes and it is unclear where most of the money went.  Local officials also failed to abide by “environmental requirements” on the bus-stop’s building frame.
The findings occur as Puerto Rico is trying to deal with a financial crisis brought about by a $72 billion debt.
Caribbean Business