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  #321  
Old 11-14-2019, 07:30 AM
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Mary Pat Campbell
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https://fixedincome.fidelity.com/ftg...b8b40000_110.1
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Cancellation of Puerto Rico's unsecured debt gets new round of bashing

Spoiler:
Municipal bankruptcy expert James Spiotto warned a House committee this week that allowing Puerto Rico to cancel its unsecured debt would lead to higher borrowing costs in the future that would hinder its future economic recovery.

Another warning against debt cancellation also came from the attorney representing 23,000 members of the Service Employees International Union who work in the territory’s schools and hospitals.


Both were among the witnesses who spoke to the House Natural Resources Committee on Wednesday regarding possible amendments to the 2016 Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).

Oversight Board Executive Director Natalie Jaresko also advised against debt cancellation at Natural Resources Committee hearing last week.

The 2016 law created an Oversight Board to restructure the territory’s debt, but critics who have highlighted perceived shortcomings in the law and want Congress to enact amendments.

“Democrats would have written a different law if we were in the majority,” Natural Resources Committee Chairman Raul Grijalva, D-Ariz., said last week at an earlier hearing on the possible amendments.

But any changes to PROMESA will require broad bipartisan support in the House because the Senate is not expected to write its own legislation.

Democratic Rep. Darren Soto of Florida said he is hoping a bipartisan agreement can be reached.

“I think the committee is very open-minded about what to do,” Soto told reporters Wednesday. “I think it’s more likely if we can get a bipartisan bill coming out of the House, that we can get something done.”

But the committee’s ranking Republican, Rep. Rob Bishop of Utah, made it clear that a draft provision allowing for cancellation of unsecured debt is a non-starter.

“The proposed amendments that have been floated around here are not going anywhere,” Bishop said at Wednesday's hearing. “If they are passed in the House, which I consider kind of iffy... they will never be discussed in the Senate and they will never be signed by the president.”

Spiotto, managing director of Chapman Strategic Advisors, told lawmakers that replacing debt restructuring with debt cancellation has no rationale or justification.

“What is important is not the elimination of debt, but the adjustment to what is sustainable and affordable,” Spiotto said.

The mean haircut in 180 recent sovereign debt restructurings was 38%, Spiotto said.

“Why is that important?,” he said. “Because Puerto Rico will need to go back to the market to borrow money for its infrastructure and other government services.”


The experience of Greece, Argentina, Brazil, Peru and others that canceled their debt was that they ended up paying more in the end. “At least 2% more per annum which equals on a 20-year bond at maturity on a 5% discount, 25% of the additional amount goes to additional interest,” he said.

Alvin Velazquez, associate general counsel for SEIU, offered another perspective on the inadvisability of canceling unsecured debt.

He told the story of Ramon Ortiz Carro, the founder of Unitech Engineering Group, who is owed $11 million for a public housing project he and his partners built 11 years ago.

“Mr. Ortiz was a proud employer, but has now had to let go of all 125 of his staff,” said Velazquez.

Unsecured creditors are currently scheduled to only receive 1.8 cents on the dollar while pre-2012 General Obligation bondholders are in line for a baseline recovery of 64% that could go as high as 89.4%, Velazquez said.

He noted that one of the chants that demonstrators used last summer when former Gov. Ricardo Rossello was under pressure to resign, translates in English as, “to clean out the filth you have to do an audit.”

The people of Puerto Rico want a truly independent audit of the debt, the SEIU attorney Velazquez said.

Jaresko last week told lawmakers that an audit is not needed because of the financial review completed last year by the international law firm, Kobre & Kim.

Velazquez said there have been productive results of the Kobre & Kim report, but it wasn’t an independent audit.

“They were not acting independently,” he said. “Quite the opposite. Legal ethics bound Kobre and Kim to zealously represent their client's interests, meaning the interests of the Oversight Board.”


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  #322  
Old 11-25-2019, 03:09 PM
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Quote:
Puerto Rico ERS bondholders seek to be named trustee

Spoiler:
Holders of Puerto Rico Employees Retirement System bonds have petitioned the bankruptcy judge to appoint them as system trustee.

The investment funds holding the bonds said in a court filing Tuesday that ERS had independent interests from government’s interests since they have been put into Title III bankruptcy, and that the Oversight Board has trampled the ERS's interests.

The funds pointed out that Judge Laura Taylor Swain had recognized that the Puerto Rico Sales Tax Finance Corp. (COFINA) had separate interests from the commonwealth government and she had appointed a trustee for it during the restructuring of its bonds.

“The motion raises some interesting and complicated questions, which as a practical matter must be addressed sooner or later,” said municipal bankruptcy expert James Spiotto. “While the appointment of a trustee under Section 926 of the bankruptcy code is unusual, the legislation and actions of the commonwealth as to ERS are equally unique.”

The board put ERS into the Title III bankruptcy in May 2017, when it had $3.2 billion of debt outstanding. The board submitted a plan of adjustment to the court in September that would award the ERS bondholders 15 cents on the dollar.

Swain put issues concerning ERS and Puerto Rico central government debts into confidential mediation this summer. However, in October, due to the support of several ERS parties, the disputes returned to open litigation.

The bondholders’ motion is a potential means for undoing the plan’s treatment of their bonds, said Spiotto, who is managing director at Chapman Strategic Advisors. In its motion statement, the bondholders said that ERS was set up in 1951 to be an independent, self-governing trust.

The central government historically provided 59% of employer contributions to ERS, with the balance coming from Puerto Rico’s municipal governments and public corporations. When ERS was put into Title III bankruptcy, the commonwealth government owed ERS more than $411 million, the bondholders stated.

The board has claimed to serve as the representative of ERS and the commonwealth after putting both into Title III, even though the commonwealth owes ERS substantial amounts of money, the bondholders said Tuesday.

The board’s filing of the Title III petition for ERS on May 21 “triggered the operation of the automatic stay to protect ERS’s property,” the bondholders said Tuesday. However, pursuant to the board’s fiscal plan the local legislature passed a resolution in June 2017 requiring ERS to sell its assets and transfer the net proceeds plus any of its funds to the commonwealth General Fund. The law also required employers to make contributions directly to the General Fund rather than ERS.

The board approved this law.

In August 2017 Puerto Rico’s governor signed a law that set up an employer “pay-go fee” to the General Fund to fund pensions, which had been ERS’s responsibility. The law also required the replacement of the ERS board, to allow the liquidation of ERS’s property.

The bondholders said the Oversight Board's actions were contrary to ERS’s interests. The bondholders have asked the board to pursue avoidance claims against the commonwealth on behalf of ERS but the board has declined to do so. Bankruptcy avoidance claims are claims aimed at rectifying illegal actions during or immediately preceding a bankruptcy.

The bondholders asked the judge to appoint a trustee to pursue the avoidance claims that the board has failed to seek for them.

They asked Swain to appoint either themselves as a trustee or an independent party as a trustee to pursue these avoidance actions. Alternately, they suggested appointing the former trustee of COFINA in the bankruptcy, Bettina Whyte, to be the trustee.

They asked that the judge indicate the ERS is to pay the trustee’s expenses.

Spiotto said that effectively the bondholders want the trustee to undo the commonwealth’s actions regarding ERS over the last few years.


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  #323  
Old 11-29-2019, 03:34 PM
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https://fixedincome.fidelity.com/ftg...1fbf0000_110.1

Quote:
Puerto Rico oversight board warns against tax and spending bills
Spoiler:
The Puerto Rico Oversight Board sent a letter to the territory's governor and the heads of both houses of its legislature warning them against approving proposed bills that would increase spending or cut taxes.

The board sent the letter, signed by Executive Director Natalie Jaresko, Monday, in one of the first signs of tension between the board and Gov. Wanda Vázquez since she came to power in August.


The letter also went to Senate President Thomas Rivera Schatz and House President Carlos Méndez Núñez.

The board said H.B. 2172 would reduce tax revenue and is therefore inconsistent with the fiscal plan. It said that it would reduce individual income tax collections, reduce collections from the 4% business-to-business tax, and increase tax credits.

Other parts of the bill would reduce financial transparency, the board said.

S.B. 1099 would increase the pay of firefighters. Some parts of it would dedicate an existing revenue stream to fund the salary increases, making it inconsistent with the commonwealth fiscal plan. Another section would increase taxes to pay for the increases and so the bill’s overall fiscal and economic impact needs to be evaluated, the board said.

A third bill, S.B. 1341, would increase the number of vacation and illness days for public employees, increasing costs to the government, thereby making it inconsistent with the approved fiscal plan, the letter said.

The board noted that the government passed joint resolutions allocating funds from previous fiscal year budgets. In 2018 a board spokesperson said the past-approved budget money doesn’t exist anymore and these reallocations are simply attempts to evade fiscal plan restrictions on spending. Such reallocations require the board’s approval, the board said in its letter.

Finally, S.B. 1455 proposes that the Puerto Rico Tourism Company continue to remain separate from the Department of Economic Development and Commerce. The board-approved fiscal plan requires that the former be part of the latter. The board said that this consolidation would be in the fiscal 2021 budget, which will cover July 1, 2020 to June 30, 2021.

In the letter’s conclusion, the board told the leaders it expected the governor, the House, and Senate to comply with the fiscal plan and board-certified budget. If they don’t the board said it would take legal action authorized in the Puerto Rico Oversight, Management, and Economic Stability Act.

Since Vázquez became governor in early August, she has maintained a cooperative relationship with the board. For example, prior governor Ricardo Rosselló said he would oppose any board proposal that cut government pensions. When the board presented a plan of adjustment in September that included cuts to pensions, Vázquez said she opposed the pension cuts but that she wouldn’t oppose the plan despite the fact they were included in it.

Spokespeople for the governor and the Puerto Rico Fiscal Agency and Financial Advisory Authority didn’t respond to a request for a comment on the board’s letter.


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