Assured blasts Puerto Rico fiscal board for annual report
SAN JUAN – Assured Guaranty, a bond insurer with $5.27 billion worth of exposure to Puerto Rico issuers covered by the federal Promesa law, critcized the first annual report of the Financial Oversight & Management Board, accusing board members of hiding financial data from creditors and approving faulty fiscal plans.
In a letter to the fiscal board sent Monday, Dominic Frederico, president & chief executive officer for Assured, said the company has participated in Puerto Rico’s capital markets for decades by providing insurance policies on bonds, as well as in other issuances and transactions around the world.
“Based on this experience, it is Assured’s view that a number of the Oversight Board’s actions have resulted in setbacks rather than progress towards achieving the Oversight Board’s mandates,” he said, adding that Promesa specifically orders the board to achieve fiscal responsibility and access to the markets for Puerto Rico.
The fiscal board’s annual report cites the certification of a 10-year fiscal plan and the fiscal year 2018 budget for the commonwealth and its instrumentalities, including component units Puerto Rico Electric Power Authority, the Aqueduct and Sewer Authority and the Highways and Transportation Authority as evidence of substantial progress. Assured, however, says the board has not ensured that such plans are “accurate, sound, reasonable, or even lawful.” Once they are certified, the plans are immune from third-party challenges, the board has assured, citing Promesa.
“With respect to the information pertinent to the development of certified fiscal plans and other matters that are of great importance to creditors, the Oversight Board has refused multiple creditor requests,” Frederico said. “We find sorely lacking the detailed financial and operating information, as well as access to government officials and their advisors that a reasonable investor would expect to receive before agreeing to any restructuring.”
He noted that the fiscal plans certified by the board collectively “fail to differentiate between essential and non-essential services; incorporate unrealistic assumptions on economic growth, in order to manufacture dire financial projections that reinforce a crisis-narrative; and grossly underestimate the federal government’s commitment to the welfare of Puerto Rico.”
The company president further said the board “pad[s] the fiscal plan expenses with an unexplained ‘expense reconciliation adjustment,’ or, in plain-speak, a $600 million per year unallocated cost overrun fund that defeats the purpose of budgetary restraint and government accountability; fail[s] to update budgets and fiscal plans to account for recent revenue outperformance; fail[s] to provide adequate transparency; and ignore[s] the relative rights, priorities, liens and pledges securing bonded debt issued by issuers.”
With respect to 1,700 files the report claims have been uploaded to various data rooms, Assured said a great number of the files either relate to Prepa’s operations, rather than the broader commonwealth’s financial position, and were provided to Prepa creditors by that entity’s advisers before the appointment of the board and the development of any fiscal plans.
He said many files are already public or relate to information “that is largely immaterial, rather than directly respond to creditor requests.”
“In light of this flawed dynamic, certification of deficient fiscal plans seems intended to pressure creditors to make concessions against their interests, but instead has led to a barrage of litigation and a breakdown in discussions, all counterproductive to achieving the goals of PROMESA, or any consensual resolution of disputes,” the letter reads.
The report states that “the Oversight Board and its advisors have held numerous constructive meetings, mediation sessions and presentations with creditors to restructure the debt of the Commonwealth and its various covered entities….”
However, Assured says it has not found any meetings to date on debt restructuring to be constructive and has instead “witnessed the Oversight Board’s refusal to proceed with Prepa’s restructuring support agreement,” referring to the board’s decision to reject the electric utility’s restructuring support agreement.
The report does highlight the importance for the island of regaining access to capital markets, but Assured says the board’s current course will not restore market access.
“The Oversight Board has advocated that all Puerto Rico entities are subordinated to the social needs and entitlement programs of the Commonwealth, notwithstanding the Constitutional, contractual and other legal protections specifically established that prevent that outcome so that marginal credits, like the Commonwealth and its public corporations, can access capital markets at reasonable interest rates,” Frederico said.