Natalie Jaresko, Executive Director of the Board. (horizontal-x3)
Natalie Jaresko, Executive Director of the Board. (Vanessa Serra Díaz)

For the first time since the Oversight Board took office two years ago, the federal entity set a possible deadline of 12 to18 months to complete the Puerto Rico's debt restructuring process.

Shortly after announcing that it had reached an agreement with a substantial part of the bondholders of the Puerto Rico Sales Tax Financing Corporation (Cofina, Spanish acronym) and that Judge Laura Taylor Swain concluded that the federal agency has not usurped the powers of the island's government , the Executive Director of the Board, Natalie Jaresko, was confident that, by the end of 2019, Puerto Rico could leave behind the debt restructuring process.

"We have made serious and real progress, there is momentum, and we can see the path towards the recovery of Puerto Rico," the executive director  said at a press conference yesterday, in which she explained that restructuring the island's debt is key to recover "the credibility" before capital markets.

Jaresko's expressions have as a background three restructuring-related agreements announced by the Board that have taken place in less than three months: the Cofina agreement, the one with the organized group of the Electric Power Authority (Ad Hoc-PREPA) and the restructuring of the debt in the Government Development Bank (GDB), which process of consultation with creditors formally began yesterday.

Altogether, and as anticipated by El Nuevo Día, the three agreements involve modifying some $ 30 billion of the $ 72 billion  owed by the Puerto Rican government.

However, advances in negotiations with bondholders could make the dispute between the Board and the government over issues such as the Christmas bonus of public employees or budget allocations to the Department of Public Safety become less important in a year.

This, because to date, and based on what the government and the Board have said, only the three preliminary agreements reached with the different groups of bondholders would imply a debt service almost similar to the excess that the Board has established in the certified fiscal plan. And the more resources devoted to debt, the less there will be for pensioners, contractors and the government daily operations.

Based on the agreement signed in Cofina, bondholders of that public corporation would have a debt service that, as from fiscal year 2019, could be around $ 400 million. In the case of the PREPA agreement, debt service could start at about $ 300 million.

Meanwhile, in the case of the GDB, the agreement could initially entail an annual payment of between $ 150 million and $ 200 million.

According to the fiscal plan certified by the Board on June 29, the primary surplus - which could be available for  debt service- would be about $ 1.266 billion. According to the document, which served as the basis for the Board to certify its own budget for the current fiscal year, the average surplus for fiscal years 2019 to 2023 would be around $ 1.295 billion.

Change the route

In the financial and bankruptcy world, reaching an agreement of a significant nature such as the case of Cofina -this is the largest bond credit held by Puerto Rico- is interpreted as the opportunity to achieve other similar agreements.

The issue is not new and occurred recently during the bankruptcy of Detroit. There, according to newspaper reports, an agreement between the city and the investment banks UBS and Merrill Lynch, which was subsequently modified, was the first in a series of agreements to reorganize the finances of the automotive center within 18 months.

And in that world, according to sources, it is also part of the premise that whoever reaches agreements first, can get a more beneficial deal than those who sit at the table after cards have been dealt.

At present, the current budget does not include any item for the payment of the debt, but previously, Jaresko and the president of the Board, José B. Carrión, indicated that if an agreement was reached with creditors, the budget would have to be modified to serve that new obligation.

Yesterday, Jaresko did not discuss how much  the government will have as a primary surplus in its fiscal plan. That item is what is understood would be available for bondholders and other creditors.

What the former Ukraine Minister of Finance acknowledged is that, despite the agreements reached in Cofina, PREPA and BFG, Puerto Rico would still have to adjust the debt in a dozen entities - both under PROMESA Title III and outside - and that the Board is about to review its fiscal plan estimates.

This is due to the improvement in tax collections during the fiscal year that just ended and greater clarity regarding the funds that would arrive in Puerto Rico to contribute to the reconstruction after Hurricane Maria.

The most "difficult" part

According to Jaresko, although throug the three agreements the Board would have made a 180- degree turn to the debt restructuring efforts of the island, the most "difficult" part to reorganize the Puerto Rican treasury is the government's responsibility. It is up to the Island, said Jaresko, to direct structural reforms and ensure that the current budget is implemented.

While from La Fortaleza it has been announced that they  are considering resorting  to the First Circuit Court to appeal the adverse ruling  in the budget struggle, Jaresko stressed yesterday that in order to make progress with  creditors, it is necessary for the government to do its part.

"Implementation is everything," Jaresko said repeatedly, noting that the key to avoiding more litigation and more spending on lawyers is to work in "collaboration."

El Nuevo Día asked Jaresko if the government has made any approach to redistribute budget items as outlined in this newspaper. The executive denied it.

"I can not imagine a situation in which someone cannot operate in the second month of the fiscal year. If that exists, someone should come to me tonight so I know who lacks money ... I find it almost impossible," said Jaresko. She recalled that, although the Board certified its own budget, the vast majority of allocations were conceptualized in cooperation with government officials.

Structural reforms

For Jaresko, before the government continues to claim that it needs to redirect funds from one item to another - for which the endorsement of the Board is required in the light of Swain's ruling - what is appropriate is to understand the scope of the fiscal plan.

In that sense, Jaresko insisted on adopting the structural reforms advocated by the federal entity and adopting “common sense“ initiatives to improve the government administration. Regarding those reforms, however, Jaresko indicated that she would welcome the repeal of Law 80, although she will no longer insist on it.

A setback from Boston

The emphasis of the Board in completing the agreements reached  did not seem to diminish yesterday, despite the fact that the First Circuit of Appeals gave two setbacks to the Board and the government.

That court concluded that Swain was wrong in denying a request from PREPA's bondholders for the automatic suspension of litigation provided in PROMESA to be lifted and a trustee to be appointed in that public corporation.

In addition, in the case of Peaje Investment v. Highways and Transportation Authority (PRHTA), that Court concluded that Swain did not abuse her powers when she determined that the investment firm does not have a statutory right over toll revenues.

Jaresko welcomed the ruling regarding Peaje Investment, and said she will continue working on the restructuring of PREPA's debt taking into consideration the adverse ruling.


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