Gov’t makes $354M debt service payment via clawbacks
The Puerto Rico Government Development Bank announced today it has met its scheduled payments of $354 million in principal and interest after Gov. Alejandro García-Padilla instructed his fiscal team to redirect available revenues from other instrumentalities by activating contractual clawback provisions.
In light of recently revised revenue estimates and its deteriorating liquidity situation, the government will use certain available revenues that have been budgeted to pay debt service on the debt of certain public corporations to pay public debt, or debt issued or guaranteed by the Commonwealth.
There are three possible instrumentalities from which the government could pull money, according to available data: The Puerto Rico Highway and Transportation Authority, the Puerto Rico Infrastructure Financing Authority, and the Puerto Rico Convention Center District Authority. All three entities cover their debt with different tax revenue streams that could be redirected to cover the most pressing debt, to avoid a default.
“Today’s debt service payments reflect our commitment to honor our obligations notwithstanding the extreme fiscal challenges we face in an effort to facilitate a voluntary restructuring process with our creditors,” said GDB President Melba Acosta. “However, make no mistake, Puerto Rico’s liquidity position is severely constrained at this time despite the extraordinary measures the government has taken to improve it.“
“We hope today serves as a clear indication that intend to honor our obligations to the extent possible without interrupting essential public services. However, the Commonwealth’s overall fiscal positions remains tenuous,” she said.
The GDB’s obligation includes $273.3 million backed by the Commonwealth’s General Obligation constitutional guarantee and are insured by MBIA/National.
“In the following weeks, we will continue to have discussions with our creditors about supporting the creation of a sustainable path forward for the Commonwealth. To succeed, this course of action entails shared sacrifices from all our stakeholders, including our creditors,” Acosta added, confirming the governor’s testimony offered before members of the U.S. Senate Judiciary Committee earlier today.
“Starting today, the Commonwealth will have to clawback revenues pledged to certain bond issues in order to maintain essential public services. We have taken this difficult step in the hope that Congress will act soon. But let us be clear, we have no cash left. The emergency measures we have taken to avoid a default and maintain essential services are unsustainable,” García-Padilla said during the hearing participated by a handful of on- and off-island public and private-sector representatives.
Testifying for the first time was Popular Inc. CEO Richard Carrión, who told congressional lawmakers that Puerto Rico needs a comprehensive recovery plan that includes: a debt restructuring regime, a fiscal control board and economic stimulus measures.
The need for a federally appointed fiscal control board and inclusion in the U.S. Bankruptcy Code’s Chapter 9 provision were also brought up during the hearing.
“If Congress fails to provide a legal framework for debt relief, the chances of reaching a successful outcome will diminish significantly. Failure by the Commonwealth to secure debt relief will harm all stakeholders, including our creditors, and may result in a real humanitarian crisis for more than 3.5 million American citizens,” Acosta noted.