Disappointing talks between Puerto Rico and creditors
Continued discussions between Congress and Governor Ricardo Rossello have been a continued disappointment to investors. While originally expecting a significant sum of their investments to be paid back to them with the new budget approval, the investors came to learn that what they originally thought was going to be an amount of a little over $2 billion actually turned about to be about $404 million. This coupled with the crisis regarding PREPA and continuing negotiations regarding the funding and security of that institution leads investors to increased agitation and frustration.
PREPA is at about $8.3 billion dollars in debt to its bondholders and is facing a crisis of either having to raise its already astronomical rates or face severe restructuring and possible closure. In front of a US Congressional hearing, Governor Rossello called for concessions from bondholders and offered a restructuring plan for PREPA as well as an extension on the tentative debt restructuring deal changing the end date from March 31, 2017 to May 1, 2017. This is the same day that the stays on the deficit lawsuits are also set to expire. This move has demotivated many investors who were hoping to walk away from many of these deals with at least the interest they are owed. They are concerned that changing the due date could be more destructive to their investments as well as other investments in Puerto Rico. Failure to reach an agreement on this deal could cause Puerto Rico to loose good faith credit and harm the people on the islands even more, causing the government to stagnate.
The deals, or lack thereof, will leave Puerto Rico at an even greater economic disadvantage. Without a deal reached for PREPA, the lights in Puerto Rico could be shut off and that new crisis may lead Congress to adding negotiations to PROMESA that were originally left out due to already ongoing negotiations regarding the PREPA payments. The final outcome of those negotiations was a deal where the company would not pay principal on their debts, only interest, and using the principle budget to restructure, modernize, and lower rate and debt. This agreement has been extended a number of times and while there is a chance for it to be extended again, Rossello has reservations about the plan as a whole.
The governor claims there are issues in the agreement that would of raise costs on ratepayers, affect the Capital and liquidity of Puerto Rico, and would lead to unsustainable pay to bondholders. He looks to renegotiate to ensure a better deal especially for the ratepayers. When California Representative Doug LaMalfa (R), chair of the subcommittee for the House Natural Resource Committee, asked if this renegotiation was worth it, Governor Rossello responded that he believed that it would be worthwhile to put Puerto Rico on a path that would be “actually sustainable” and allow for economic growth. Negotiations are continuing this week in different committees with a hope that an acceptable consensus can be met.
photo credit: Capitol of Puerto Rico by Paul Joseph