WASHINGTON – On Wednesday, the subcommittee on Insular Affairs will be holding a hearing on the Puerto Rico Electric Power Authority (PREPA), which could be a reflection—either by action or by omission—of the priorities of the Republican majority in Congress regarding the imminent restructuring of the Island’s public debt.
According to our sources, this session has been convened to discuss the particular process to renegotiate PREPA’s debt, with the intention of insisting in favor of the preliminary agreement signed in November of 2015 and promoting it as a model for the voluntary conversations that should be held—in a race against the clock—between the Government and its creditors.
The hearing will take place just six weeks before the end of PROMESA’s judicial stay on litigations to collect on the public debt, which expires on May 1st.
The bondholders have advocated in favor of closing the preliminary agreement between 70% of PREPA’s creditors and the public corporation’s management.
But they have not yet been able to gain access to the financial markets at an adequate interest rate, or establish a significant rate increase, as required in the preliminary agreement between that bondholder group and PREPA’s leadership.
The Government of Puerto Rico considers it necessary to review the agreement with PREPA—which proposes an actual cutback to the debt of only 8%—because it would result “in a 5-cent rate increase, and the agreement’s sustainability comes into question—in other words, the Authority’s ability to pay what is agreed without being in the same place in four years,” Elías Sanchez said last week. Sánchez represents the Governor in the Oversight Board (OB) in charge of the Island’s public finances.
On Friday, Ricardo Rosselló’s administration announced that formal negotiations with the general obligations creditors are underway.
When speaking about Wednesday’s session, Resident Commissioner in Washington Jenniffer González claimed that the leaders of the Committee on Natural Resources are looking into “how they may help the Government and the private sector to have some sort of negotiation before May 1.”
The Subcommittee on Indian, Insular and Alaska Native Affairs (the full name of the subcommittee that is part of the Committee on Natural Resources) has summoned Governor Rosselló, OB Chairman José Carrión III, OB member Ana Matosantos, a directive member of PREPA, Steve Spence—representative for the Ad Hoc group of PREPA bondholders—, and Adam Bergonzi, managing director of the National Public Finance Guarantee Corporation, to testify.
The official list of speakers should be revealed today, but Governor Rosselló yesterday confirmed his participation in the hearing, as part of a trip where he hopes to also advocate for the extension of the Medicaid funds assigned by Obamacare,which could run out before the end of 2017.
Sights Set On PREPA
When the US House of Representatives fully delved into Puerto Rico’s fiscal and debt crisis in early 2016, the Committee on Natural Resources had a particular interest in PREPA and the possibilities of privatizing some of its functions.
But up until a few days ago, even the leaders of the Committee on Natural Resources claimed that the hearing would be an in-depth examination of PROMESA, the work done by the Board, and Governor Rosselló’s initiatives.
Commissioner González has stated that she will regardless seek to hold the Board accountable on Wednesday for the work it has done.
“All things considered, PREPA is not the best example to follow in the negotiations,” remarked Sergio Marxuach, director of Public Policy in the Center for a New Economy (CNE), when noting that PREPA could have obtained “a much larger discount from the bondholders” and made way for private investment.
In any case, Marxuach thinks “it’s good to have all of the transaction’s details laid out,” although he thinks it is obvious that “the bondholders are putting pressure to close the transaction as soon as possible.” “That’s exactly why it raises suspicions,” he added, since experts agree that “PREPA left a lot of money on the table.”
For Marxuach, “it is totally unrealistic” to think that the Government will reach debt restructuring agreements before May 1, because “they haven't even had an exchange of offers and counter-offers” with the general obligations and COFINA bondholders.
Even though the leaders of the Committee on Natural Resources may want to promote PREPA’s negotiations as a model for other dialogues, Marxuach stressed it is a fact that, based on PROMESA’s requirements—having good faith negotiations and at least a preliminary audit of the agency—, PREPA’s case “is ripe enough to go to court.”
Nonetheless, Marxuach highlighted that “setting PREPA as a precedent would be starting off the negotiations on the wrong foot, from Puerto Rico’s standpoint and its future viability.”
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