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(GFR Media)

After almost two weeks since the Oversight Board (OB) and the Fiscal Agency and Financial Advisory Authority (FAFAA) called the bondholders and insurers of Puerto Rico to a mediation process, the parties have not made substantial progress despite the near end to the automatic stay on litigations provided for in the federal PROMESA law.

According to at least three separate sources of El Nuevo Día, both on the side of the creditors as well as the Government’s, though there’s been a “certain willingness” on the part of creditors and the OB to arrive to an understanding, as late as yesterday, the mediation process –which has been conducted under a veil of secrecy – was not near a definitive solution. The mediation process is led by retired bankruptcy judge Allan L. Gropper.

Offers on the table. This, even though, the OB and the FAFAA, according to the sources, were purported to have received two offers from the creditors.

“Yes, an offer was submitted, but there’s been no response,” said one of the sources who requested anonymity saying he was not authorized to discuss the matter.

A second source indicated that one of the offers was submitted by the Ad Hoc group of General Obligations, while certain creditors of the Puerto Rico Sales Tax Financing Corporation (Cofina, by its Spanish acronym) had done as much.

Last week, in an interview with El Nuevo Día during a forum of the Latin American Business Council, governor Ricardo Rosselló Nevares said that “the ball is in the court” of creditors, as his fiscal team waited for an offer to continue the talks.

Many creditors at the table. The sources also said that after two days of discussing the Fiscal Plan approved by the OB, the Government’s advisers were getting ready to release at some point during this week some of the details contained in their offer. When the talks got under way on April 13, the creditors rejected that offer, because, instead of discussing it, they focused the debate on the forecasts and assumptions that base the fiscal plan.

According to the sources, although “nothing concrete” had occurred until yesterday, the OB and the FAFAA were right in taking to the negotiation table a broad representation and, in certain cases, mostly, of Government’s creditors.

In addition to the three separate sources, El Nuevo Día confirmed with another three sources that the OB and FAFAA are holding talks with various principal bondholders with bonds from different issuers of Puerto Rico. That would be the case of Oppenheimer Funds, Franklin Advisors, Goldman Sachs and municipal insurers, National Public Finance, Assured Guaranty, and Syncora, who back the central Government’s debt, but also that of public corporations such as the Puerto Rico Highways and Transportation Authority (PRHTA). 

Likewise, the sources said that several hedge funds that make up the Ad Hoc groups are at the table, just like certain savings and loans corporations –both with debt from the Government Development Bank (GDB)- and institutional funds’ managers in the Island.

Bondholders fed up. According to the sources, the Government’s advisers have requested the signing of a leniency agreement, that may in some way, prevent the filing or the continuation of litigations in court due to the expiration next Monday, May 1, of the automatic stay on litigations against the Government.

However, as of yesterday, the request by the FAFAA and the OB seemed to have few supporters.

In essence, to creditors, the certified fiscal plan is wrong both at law as well as in numbers.

According to the sources, the creditors are not willing to accept the amount of money that would be destined to the annual payment, because the average figure of $800 million in 10 years barely represents 4% of projected collections.

“The plan by (Alejandro) García Padilla suggested 15% (for annual service of the debt), and that was unacceptable,” recalled one of the sources.

For the bondholders, it also makes no sense not to have their payment increased when the Department of the Treasury now collects more money than before. Last March, for instance, the Treasury reported income to the General Fund as 6% higher that that of March 2016.

Also, El Nuevo Día learned through other two sources that, last February, certain bondholders suggested to the FAFAA a leniency agreement to start negotiations, but no response was ever given.

The struggle at the table and in D.C. The impasse between the OB, FAFAA, and the creditors raged to such a point, sources assured, that the heated debates they have seen at the negotiating table have also been transferred to Washington, D.C., where several of the Island’s creditors have taken their objections on the workings of the OB, the adoption of the fiscal plan, and the implementation of PROMESA.

According to the sources, if Puerto Rico’s creditors fail to reach “a reasonable agreement,” they will place all kinds of obstacles in the federal capital, whether it be in the allocation of federal funds for the Island or the discussion on the political status.

That tug of war, albeit silent, led by the OB, the Rosselló Nevares administration, institutional bondholders, hedge funds, and municipal insurers, was confirmed on Tuesday when the president of the federal entity with powers above those of the elected government of Puerto Rico, José B. Carrión, sent a 13 page letter to republican senators Thom Tillis (North Carolina) and Tom Cotton (Arkansas) rejecting the complaints creditors have taken to the Congress.

“It is important to acknowledge that the creditors, whose concerns you report in your letter, are in the midst of negotiations with the Board and the Government,” so reads Carrión’s letter in which he states that the complaints from bondholders “are partof their negotiation strategy.”

According to Carrión, between December 2016 and March 2017, the OB and the Government have held over 30 meetings with the creditors.

Title III and Congress. Carrión’s letter, made public by the OB comes at a critical time, both for the Island and the federal government.

On the one hand, the letter confirms multiple news stories by El Nuevo Día in which it said that Puerto Rico will not have enough money to face the payment for public pensions, the Mi Salud health program and, in turn, pay the bondholders starting next July.

In the letter, for instance, Carrión holds that, starting this summer, the General Fund will have to take $989 million to pay for the pensions of public employees.

Likewise, Carrión reiterates the conclusion of the congressional task group created by PROMESA and which warned last December that Puerto Rico will have to “take out hundreds of thousands of Medicaid participants” or cover said program, allotting money from other areas, such as “payments to creditors and the provision of public services.”

On the other hand, Carrión’s letter comes at only two days from when the federal government itself could close down. This, if the federal Congress fails to extend the resolution that funds the federal government’s spending.

Carrión assured senators that, given the lack of money, if the Government were forced to seek bankruptcy under Title III of PROMESA, the OB will continue with the negotiations.

But then Carrión also seemed to blame Congress for the little money it is going to pay bondholders and for the ensuing fiscal and economic chaos that will befall Puerto Rico because of the lack of sufficient funds.

“The Board invites the Congress to help enlarge the pie, renewing the flow of Medicaid funds for Puerto Rico under the Affordable Care Law, which, will otherwise, become depleted in December 2017,” said Carrión by reminding the senators that, under PROMESA, the OB cannot rest on high level fund items or those over which there is no certainty, such as is the case with Medicaid.


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