Within a 24-hour period and without holding any public hearing, the Legislature approved the administration bill that would enable the renegotiation of Puerto Rico’s main bonds debt: that of the Sales Tax Financing Corporation (Cofina, Spanish acronym).
This is the second Puerto Rican legislative approval of a restructuring settlement since PROMESA was passed about two years ago. Previously, the Legislature authorized the modification of the debt of the Government Development Bank (GDB), endorsing, among other things, holding harmless those who could have contributed to the Puerto Rican financial collapse.
“Maybe it’s not the best agreement. Perhaps some people get more than they deserve, but there are many who are receiving less than they were entitled to, particularly serious people in Puerto Rico,” said Senate President Thomas Rivera Schatz, after the body endorsed the piece in a first partial vote.
“It is a bill that guarantees that, in a short time, we will bring the monster of the fiscal crisis back and, on top of that, it opens the way for us to become indebted again with illegal debts”, he said, meanwhile on the floor, Independent lawmaker José Vargas Vidot when describing the agreement as “the Christmas gift for the vultures.”
Popular (PPD) senator Cirilo Tirado said that he favored debt renegotiation.
“But we do not agree on it to be done in a way that favors specific sectors to the detriment of the people of Puerto Rico,” said Tirado. “The agreement could, in papers, represent a saving, but in the long run, it could be used as a model for negotiating other debts and that could prolong the agony of Puerto Rico,” he said.
The main obstacle
With or without criticism, the truth is that the expedited process adopted by the Legislature in the case of Cofina implies that, without any difficulty, the Oversight Board, the administration of Ricardo Rosselló Nevares, as well as advisers and bondholders, overcame what was thought to be the main risk factor to complete what could be the first restructuring agreement after the protections of PROMESA Title III were invoked.
After overcoming what could have been a front of questions and opposition to the agreement, the way seems clear to approve Cofina adjustment plan in the Title III Court.
This, because while the Legislature gave its endorsement to the preliminary agreement, this week, the Committee of Unsecured Creditors (UCC) and agent Bettina M. Whyte have signed a stipulation in which, in essence, they commit themselves to not object to the Cofina adjustment plan, provided that the Board does not make changes to the fiscal plan that materially affect the funds that will be available to pay bondholders.
The next steps
The preliminary agreement between the Board, the government and bondholders to renegotiate Cofina’s debt rests, in turn, on the mediation process in which the UCC and Whyte determined, in essence, to distribute the consumption tax between Cofina and the General Fund, instead of the Court determining to which party this source of revenue belongs.
The stipulation between the parties, as well as the Cofina adjustment plan will be the main issue at the next November 20 hearing, to be held at judge Laura Taylor Swain´s courtroom in New York.
For the Board, the current process seems so definitive, that this week, its main legal advisor, Martin Bienenstock, told Swain that the Cofina adjustment plan could be approved by January 2019.
If that were the case, from the perspective of the Board and the government, the agreement would save about $ 17.5 billion in debt service and would mean $ 425 million in additional revenues to the General Fund each year.
In exchange for such relief, which has been questioned by Antonio Weiss, former Treasury Counselor and main figure in the approval of PROMESA, the House and the Senate have accepted, among other things, that from now on, the Puerto Rican debt will be ruled by the laws of the state of New York and that bondholders can recommend the governor who should occupy the positions of directors in the new structure of Cofina.
Javier Colón Dávila collaborated with this story.