Puerto Rico’s co-ops is ready to weather the storm expected from the decision by Standard & Poor’s to downgrade the island’s credit rating to junk, contrary to other economic sectors, which may be adversely affected, industry representatives said Wednesday.
“On numerous occasions I have heard it said that the cooperative has proven to be a cornerstone for our island’s economic development,” said Daniel Rodríguez-Collazo, president of the Corporation for the Supervision and Insurance of Puerto Rico Cooperatives (known as COSSEC in Spanish). “Moreover, as in the past decade, the sector has shown unprecedented strength and solidity, even in times of great economic slowdown.”
“The reality is that the strength in the cooperative movement has never been more evident than in recent times. So much so that recently the Puerto Rican people asked island cooperatives to make a historic contribution to its economic development: to finance a large portion of government debt by buying local bonds, which represented more than $1.3 billion,” he said, noting that it was a decision taken without adequate guarantees against potential losses.
“It’s important to note that the value of a bond varies constantly and is ruled by the market. At this time the market determined that Puerto Rico bonds have a lower value than originally determined,” he said. “However, just as bond degradations are the product and reflection of our liquidity assessment, the effect of this in the various economic sectors also depends on the evaluation and liquidity of each sector.”
In the case of co-ops, there is an excess liquidity, so the sector is confident the downgrade of Puerto Rico’s general obligation bonds will not affect it directly.
“Losses at this moment in time represent an ‘unrealized’ or ‘for accounting purposes’ losses for co-ops,” he said, noting that as long as island co-ops keep their bonds, they will receive full parity once they mature.
Local co-ops have mostly invested in GO bonds as well as the Sales Tax Revenue Financing Corporation (known as COFINA in Spanish), guaranteed by the Constitution and sales and use tax collections, respectively.
The COSSEC representative said notes that will mature this fiscal year represent about $77.5 million, and the agency is currently working with the Government Development Bank to guarantee payment sources.
Meanwhile, the Puerto Rico Cooperatives League said Wednesday that its member institutions have been taking steps in recent months to prepare for what finally materialized this week.
“For years the co-op movement has collaborated with the government’s fiscal position. Money has been loaned for projects, we’ve provided liquidity to the retirement system and more recently collaborated with national recovery by purchasing some $1.5 billion in Puerto Rico government bonds,” the League said in a statement.
In recent months, co-op executive have “minimized risk, created reserves, controlled spending, encouraged the exchange of investments between cooperatives and ensured that the regulator, in exercising oversight, doesn’t overlook recognizing the nature of our co-ops, which are based on social integration and attachment to solve the needs of working people.”
“It is true that we will feel the impact as the island will, but we will continue to serve our people as we have always done,” the League said. “It is time to ensure members and customers that their stocks and deposits are insured.”