New York - The Oversight Board officially put on the table the possibility of using, as soon as in the next 48 hours, the judicial bankruptcy mechanism in order to propose a historical and extensive restructuring of the debt of Puerto Rico’s government dependencies.
The members of the Federal Board, who are in charge of the Island’s public finances, adopted a resolution whereby it may decide in an executive meeting, without the need for a public meeting, to use the mechanism contemplated under Title III of the PROMESA, if the last minute negotiations between the government and its creditors do not bear fruit this weekend.
Monday marks the expiration of a moratorium on the judicial litigation for collection of the debt of the Government of Puerto Rico, which has served as a shield for the Island’s authorities since last June 30, and has prevented claims from jeopardizing essential public services. But, neither the members of the Board nor the government of Ricardo Rosselló have wanted to declare how ready they are to bring debt restructuring cases to the courts.
Through the approved resolution, the members of the Board may vote in favor of judicial bankruptcy by means of e-mail messages.
“Between the adjournment of this meeting and the opening of the next public meeting, the Board may consider in an executive meeting any matters that it is authorized to consider under PROMESA,” literally provides the resolution, which was the first agreement ratified at yesterday’s meeting in New York, where the Federal Board adopted the tax plans of four public corporations, three of them with major amendments focused on revising rates and examining privatization models.
In order to bring the debt restructuring proposal before a judge, who should be appointed by the Chief Justice of the U.S. Supreme Court, five of the seven members of the Board have to vote in favor thereof.
At a press conference, the president of the Board, José Carrión III, declared “we reserve the right to deal with any appeal or certification, at an executive meeting.” But he avoided any comments on what would happen on May 2 if the Government of Puerto Rico has not reached a leniency agreement with its creditors.
At these negotiations, the Government of Puerto Rico has had its attention focused mainly on the main investment funds that hold general obligation bonds, which have a preferred status according to the Constitution of Puerto Rico, and the Sales Tax Financing Corporation (COFINA, by its Spanish acronym).
The Government of Puerto Rico at least hopes to reach an extra-judicial settlement with its major creditors that enables continuation of talks after May 1, without being sued. However, it is very difficult that a leniency agreement would prevent judicial actions by other bondholders.
“We are aware of all that may happen,” said the executive director of the Fiscal Agency and Financial Advisory Authority, Gerardo Portela, who added that the talks continued yesterday afternoon in this city and will continue through the weekend, if necessary.
In the meantime, Carrión, hoped that any decision to resort to the federal court to request the creation of a territorial bankruptcy court – which would be a milestone for allowing the restructuring of general debt obligations of a state government– will have the support of Rosselló’s administration. “We want to be aligned with the government and I believe you have seen that these efforts have been made jointly. The government has proposed its fiscal plans, we have contemplated changes, made suggestions, and the government has accepted them,” said Carrión.
On Thursday, the governor’s representative before the Federal Board, Elías Sánchez, interpreted that the law obliges the fiscal authority, whose power is above that of the Government of Puerto Rico, to act on the basis of a debt adjustment requested by the head of a dependency.
Other sources discard that the Board is obliged to have the support of the Island’s government. And the resolution of the Board itself evidences what the interpretation of its voting members is.
Additionally, Carrión said yesterday that the head of the U.S. Treasury Department discarded that Congress may be entertaining any amendment that postpones the possibility of using the judicial bankruptcy mechanism contemplated in the PROMESA.
Conservative Republicans have been distributing in Congress a potential amendment to a future omnibus bill that would allow blocking the territorial bankruptcy mechanism.
The efforts for furthering any legislation that limits the legal path is ascribed to the groups of creditors of the Government of Puerto Rico.
Carrión was also asked to comment on the increase of protests in San Juan, where a national strike has been called for next Monday –coincidentally, International Workers’ Day and the date of expiration of the moratorium.
“We respect the people’s right to express themselves,” he said, when stating that at a time in which we are approaching fiscal cuts, “we understand the situation and the discontent.”
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