$354M bond payment, SCOTUS decision loom this week

Written by  //  November 30, 2015  //  Government  //  No comments

The GDB is facing a $354 million bond payment on Dec. 1. (Credit: © Mauricio Pascual)

The GDB is facing a $354 million bond payment on Dec. 1. (Credit: © Mauricio Pascual)

The government of Puerto Rico is facing a busy week with  the development of three key events on- and off-island, headed by a decision to make a $354 million bond payment by the Dec. 1 deadline.

The Government Development Bank has that payment obligation in Senior Notes looming, of which $273.3m is backed by the Commonwealth’s General Obligation constitutional guarantee.

For weeks, the agency has remained coy about whether it will come up with the money to pay, amid a cash shortfall that put the GDB’s net liquidity at $874.6M as of Sept. 30, of which $52m was available in cash.

Also pending is a $120 million disbursement for Christmas bonuses for public employees, which the government has also yet to confirm it will make.

Meanwhile, sometime today, the U.S. Supreme Court is expected to decide on the government’s petition for review of the decisions by the U.S. District Court of San Juan and the Court of Appeals for the First Circuit in Boston declaring unconstitutional a law passed on the island that would allow it to restructure its debts through an orderly process.

In August, the Puerto Rico Justice Department filed a petition for writ of certiorari, asking the highest U.S. Court to review whether Chapter 9 of the federal Bankruptcy Code, which does not apply to the island, preempts a Puerto Rico statute creating a mechanism for the commonwealth’s public utilities to restructure its debt.

The petition filed stated that because the island was excluded in 1984 from Chapter 9 of the US Bankruptcy Code, the shot down Law 71 (known as the Puerto Rico Public Corporation Debt Enforcement and Recovery Act) enacted last year, applies.

The local law was shot down twice in response to a challenge by a group of bondholders of the Puerto Rico Electric Power Authority — represented by Franklin California Tax-Free Trust, Blue Mountain Capital and Oppenheimer Funds — filed in June 2014, claiming the law broke faith with PREPA investors by erecting an unconstitutional bankruptcy structure that would violate their contractual rights.

The Supreme Court convened on Nov. 24, reviewing the petition among a number of others, and is expected to issue an order on it today, according to the case docket.

Also on this week’s agenda is a hearing convened by Senate Judiciary Committee Chairman Chuck Grassley to examine the source of and possible solutions to puerto rico’s fiscal problems. The hearing will take place tomorrow at 10 a.m.

Earlier this month, Grassley said his goal with the hearing is to help committee members and the public identify and gain a better understanding of the root cause of Puerto Rico’s fiscal problems, discuss what’s currently being done, and consider what options are available that could help Puerto Rico get itself out of the present situation.

The Judiciary Committee has jurisdiction over bankruptcy policy, but Grassley has reiterated that restructuring debt and throwing taxpayer money at the island, without ensuring the creation and implementation of structural and fiscal reform, fails to resolve the underlying problems in Puerto Rico required to create economic growth.

The hearing will consist of two panels, the first composed by Gov. Alejandro García-Padilla and Resident Commissioner Pedro Pierluisi. A second panel is headed by: Popular Inc. CEO Richard Carrión; Carlos Colón de Armas, finance professor at the University of Puerto Rico Graduate School of Business; Alex J. Pollock, resident fellow at the American Enterprise Institute; Stephen Spencer, managing director at Houlihan Lokey; and Richard Ravitch, former lieutenant governor for the State of New York.

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