Puerto Rico had greater financial resources than it previously claimed, but there continues to be little transparency in the process, and audited financial statements still have not been produced since 2014, said Dominic Frederico, CEO of Assured Guaranty Ltd., which holds government debt.
“The most recent draft fiscal plan, the third this year, now projects $6 billion available for creditors in the first six years, when just two months ago the Commonwealth claimed to be facing a deficit exceeding $3 billion before paying any debt service, a swing of almost $10 billion,” he said.
Federico’s statement responded to the latest revised fiscal plans submitted by the government of Puerto Rico, the Puerto Rico Electric Power Authority (PREPA) and the Puerto Rico Aqueduct and Sewer Authority (PRASA) and by the Financial Oversight and Management Board for Puerto Rico.
“Every new fiscal plan paints a different picture, but they each continue to demonstrate a failure to comply with applicable law including the requirements of PROMESA, an unwillingness to repay debt obligations, a lack of recognition of the importance of capital market access for future economic growth, and the allocation of hundreds of millions of dollars to unnecessary litigation expenses — expenses that could be avoided by working together with creditors and other stakeholders to develop a realistic plan for Puerto Rico’s future,” he said.
“Based on the revised plan and further opportunities for revenue and expense improvements, a consensual agreement can be negotiated without delay and significant litigation expense,” he added.
The executive blasted Gov. Ricardo Rosselló’s “unprecedented suggestion” to increase public sector salaries and cut taxes, thus deepening the financial hole even while the Commonwealth sits in Title III proceedings, essentially bankruptcy.
“The governor and Oversight Board must do a better job for Puerto Ricans whose lives and livelihoods depend on the recovery, and for investors that provided funds to build the island’s schools, airports, hospitals, and infrastructure,” he said.
“The Commonwealth and Oversight Board must develop a process to prohibit wasteful and fraudulent spending, and to eliminate the budget deficits that have plagued the island’s recent past,” he said.
Citing past municipal bankruptcies, he said working closely with creditors on consensual approaches and tapping their expertise to help navigate complicated debt restructurings is the optimal path to emerge successfully from bankruptcy.
It is critical that debtors respect their creditors. If Puerto Rico does not pay its debts, as required by its own constitution, future investment in the island will dry up, he said.
“Without investment, there can be no economic recovery or long-term expansion. This is a lesson that has clearly not been reflected in Puerto Rico’s actions,” Frederico said.
The executive said a failure to comply with applicable law and to respect property rights in Puerto Rico would also have harmful ripple effects across the mainland financial markets.
“Violating bond agreements could prevent other municipal issuers from accessing capital markets at reasonable rates,” he said.
“This would make it more expensive for municipalities throughout the United States to fund essential services and infrastructure,” Frederico said.
“We urge the Governor and Oversight Board to work with creditors to create a sustainable economic recovery plan based not on political agendas but on the Oversight Board’s only mandate: to support economic stability in Puerto Rico by achieving fiscal responsibility and access to capital markets,” he concluded.