Op-Ed: The beginning of the end of the Oversight Board begins with PRASA
In the government of Puerto Rico, we believe in coordination, rather than confrontation, with the Financial Oversight and Management Board (FOMB) to bring their mission to conclusion as soon as possible.
In the case of the Puerto Rico Aqueduct and Sewer Authority (PRASA), the Administration of Gov. Pedro Pierluisi is convinced that PRASA’s successes should mark the beginning of the end of the FOMB and that the Board should immediately and clearly establish the steps that need to be followed to put an end to its intervention in PRASA.
The Board should not be waiting for each and every one of the issues in each of the government’s instrumentalities to be resolved, rather it should solve and let go one by one. In the case of PRASA, the bond refinancing transactions that were completed in December 2020 and this week, respectively, are a definite indication that the Board must establish a clear plan to end its intervention.
PRASA never filed for bankruptcy under Title III of PROMESA nor did it use Title VI of PROMESA to restructure its debt. PRASA managed to negotiate, without the intervention of the Board, a rescheduling of the debt with the U.S. Environmental Protection Agency and the Rural Development Division of the U.S. Department of Agriculture, which resulted in benefits for all stakeholders.
Following this rescheduling, PRASA was able to reactivate access to federal fund programs under these entities, including borrowing again at preferential interest rates of approximately one and two percent.
The financial markets have unequivocally supported PRASA’s endeavors by making it possible to refinance more than $3 billion through the transactions executed in December 2020 and this month. In addition, these refinancings were made obtaining the consent of the participating bondholders to prioritize PRASA’s operating expenses over debt repayment, which will be effective once federal agencies consent to the change.
At present, debt payments to bondholders and federal agencies take precedence over the payment of PRASA’s operating expenses. Once the consent of federal agencies is obtained, the payment priority will change, and operational expenses will take precedence over debt repayment.
Another strong sign of PRASA’s achievements and progress is the profile of the financial institutions that bought the refinancing bonds, which include the largest and most sophisticated financial institutions in the world. These entities are BlackRock, Nuveen, Mackay Shields, Invesco, Vanguard, T. Rowe Price, among others. For technical regulatory reasons, PRASA cannot yet sell bonds directly to individual investors.
Catching up on the issuance of audited financial statements is among PRASA’s pending assignments. PRASA releases quarterly interim financial reports, and the audited financial statements for fiscal years 2019 and 2020 are being prepared and will be issued in the coming months.
The delay is mainly due to the issuance of certain reports from the actuaries of the Retirement Systems Administration. Such actuarial reports for fiscal year 2019 were issued recently and those for fiscal year 2020 are expected to be issued soon, which will allow PRASA to get caught up on the issuance of its audited financial statements.
We expect some reluctance (or resistance) to let go on the part of the Oversight Board. The fact is that the costs of operating the Oversight Board and its advisors are being paid by Puerto Ricans at a rate of over $65 million a year. The costs incurred by the Board to oversee the operations and finances of PRASA are unnecessary.
Some members of the FOMB itself understand the urgency of ending the Oversight Board’s intervention with respect to the actions of the officials elected by the people of Puerto Rico and their respective work teams. PRASA is the first step in that direction.
In the Oversight Board’s own words in the Government’s fiscal plan certified on April 23, 2021: ” The Oversight Board was designed to have a finite life, defined objectives, and defined tools and authorities to achieve those objectives… The Oversight Board seeks to complete its work under PROMESA promptly, so that fiscal controls, fiscal sustainability, and economic prosperity and growth can return to Puerto Rico.”
It is time to put words and intentions into action.