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A year ago, Ad Hoc-GO was among those who lobbied in the US Congress for the creation of the Board. (Archivo / GFR Media)

For organized bondholders of General Obligations (Ad Hoc-GO), the Board continues to act against the PROMESA federal law to the extent that it has become "the biggest impediment" to solving the fiscal crisis.

"Far from helping to provide the solution, the Board has become the biggest impediment to solving the fiscal challenges of Puerto Rico", said the group that claims to have priority of payment over any other obligation to pay for debt or offer services that the Government has.

In a comment posted on its website, Ad Hoc-GO said that the Board - knowingly - gave "false" answers to Senator Tom Cotton (R-Arkansas), who has become a staunch critic of the Board.

A year ago, Ad Hoc-GO was among those who lobbied in the US Congress for the creation of the Board.

According to the group, the Board intended to deceive Cotton when saying that GOs have priority payment only in relation to other government bonds.

The provisions of article VI, Section 8, of the Constitution of Puerto Rico are that the priority granted to owners of GOs precedes "literally all other disbursements" of the government, the group claimed.

According to Court documents, the Ad Hoc-GO is made up of seven investment firms. Together, they had, until yesterday, about $ 3.273 million in bonds of General Obligation. That amount represents about 25% of Puerto Rico constitutional debt. When analyzing the total debt of the country, Ad Hoc-GO only owns 4% of that universe.

Until yesterday, the Board had not answered to Ad Hoc-GO.

The letter of June 22nd

The comments of Ad Hoc-GO arose because on June 22nd, the Board wrote to Cotton to clarify the expressions of a previous letter about the process to certify the Fiscal Plan for Puerto Rico (FPPR).

Among other things, in the June 22nd letter, José B. Carrión, the presidento of the Board, told Cotton that the FPPR was the "least worst" solution for Puerto Rico and for bondholders, as the federal agency is obliged to ensure the payment of debt, but also essential services and pensions.

"For months, the Board has refused to provide creditors with any transparency regarding their analysis and has taken the position, in the case of bankruptcy in Puerto Rico, that its analyzes are exempt from examination, both by the Court and by the creditors", said the constitutional bondholders.

The Ad Hoc-GO criticism to the Board resurfaces as this week, the mediation team appointed by Judge Laura Taylor Swain and chaired by Judge Barbara J. Houser met in New York with representatives of some 19 bondholder groups, the government and the Board to promote voluntary agreements between the parties, leaving aside what could be years of litigation.

Budget trick

For Ad Hoc-GO, the "intransigence" of the Board denotes that the economic and fiscal assumptions that gave rise to the FPPR and the budget will not withstand public scrutiny.

After three fiscal years, the program of cuts in the FPPR would equal 6% of the gross product of the Island. This year the plan contemplates reducing the working day in the public sector.

However, for Ad Hoc-GO, government numbers point to "tricks".  This year, the budget with charge to the General Fund increased by 6%, or $ 575 million, for a total of $ 9,562 million. The increase, the government alleges - and in part the bondholders agree - is due to the payment of pensions that will come from the General Fund.

Ad Hoc GO argues, however, that while operational and payroll expenses would be reduced, the government created new items to cover past and current expenditures without having to justify them. These items - such as the budget reserve and that of reconciling accounts - total $ 850 million. The figure is separated from the $ 190 million cash reserve which is one of the conditions to avoid a reduction in the working day.

When the Board approved the FPPR, it determined that the trend of public overdraft required a reserve for expenses that could occur in fiscal years 2015 and 2016 for which there is still no final and audited time frame.

The budget reserve, which was incorporated as from Alejandro García Padilla administration, contemplates that agencies cannot exceed what was allocated in a fiscal year.

For bondholders, however, since the government is not paying the bondholders, the reserves required by the Board allow the government to accumulate money for expenses rather than debt servicing.

According to Ad Hoc-GO, government figures point to annual debt service of $ 1,116 million instead of the average of $ 787 million provided in the FPPR.


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