Although technically speaking, the nominations process for the Financial Oversight and Management Board (FOMB) members is on hold, pending a decision by the U.S. Supreme Court on the matter, the federal entity has not let that stop it from continuing with its work.
In recent weeks, FOMB Chairman and FOMB Executive Director Natalie Jaresko have held various meetings with the newly installed Gov. Wanda Vázquez, who recently completed her first month in office after the tumultuous July that Puerto Rico experienced, which concluded with the resignation of former Gov. Ricardo Rosselló.
In a brief email to THE WEEKLY JOURNAL, Edward Zayas, spokesman for the FOMB, said the nominations issue has not hampered the entity’s work. “In terms of moving forward with the FOMB’s goals, the members are actively working regardless of the nomination process,” he said.
Zayas also disagreed with the assessment that President Trump has to re-nominate the current FOMB members again, if they are to serve another three-year term, because the U.S. Senate did not hold hearings and approve the nominations that were submitted by Trump in June. The three-year term for the current FOMB members officially expired on Aug. 30.
“We understand that the nominations were submitted to the Senate and it is now up to the Senate to act upon them,” Zayas said.
He did not directly respond when asked if the current FOMB members are still willing to serve a second term if re-nominated by Trump. “At this point we prefer not to speculate,” he said.
Meanwhile, the Oversight Board has recently announced that the restructuring support agreement (RSA) for the Puerto Rico Electric Power Authority (Prepa) now has the support of 90 percent of uninsured bonds and all Prepa bond insurers. Bond insurers Syncora Guarantee Inc. and National Public Finance Guarantee Corp. have now decided to join the RSA with certain Prepa bondholders and Assured Guaranty Corp.
“The addition of Syncora and National to the RSA provides significant certainty to the restructuring not only of Prepa’s bonds, but to the transformation of Prepa to a modern, efficient power utility able to deliver clean, reliable and affordable energy to the people and businesses of Puerto Rico. The agreement with the bond insurers does not change the economic terms of the RSA,” the Oversight Board said in a statement.
Based on this RSA, the cut for Prepa credits is 32 percent.
In June, the FOMB announced that it had reached an agreement to restructure $35 billion in debt and other claims—representing nearly half of Puerto Rico’s $70 billion-plus debt load. Carrión has said in recent days that the government’s debt adjustment plan would be submitted to the court in a matter of weeks.
Varying Cuts for Creditors
The Oversight Board agreements with a host of other creditors includes cuts varying from 7 percent for those of the Sales Tax Financing Corp. (Cofina by its Spanish acronym) and 45 percent for Government Development Bank bonds.
The cut for most of the General Obligation (GOs) credits is at 27 percent. However, a group of GO bonds issued in 2012 and 2014 and another for the Public Buildings Authority remain in litigation. These credits, totaling $6 billion, are “illegal” according to the FOMB’s claim, alleging that when they were issued, they exceeded the constitutional cap that debt service cannot go above 15 percent of the Puerto Rico government’s tax revenues. The case remains pending.
There was some confusion in the local media that GOs and other credits may have received a cut of 66 percent, but it seems many credits were lumped together and the outcome is still uncertain due to ongoing litigation.
Economist Juan Lara, who closely follows the Oversight Board’s work and the debt-restructuring process, said that until the U.S. Supreme Court issues a ruling on the constitutionality of the FOMB members’ nominations, the federal entity is in a “waiting” mode.
“They stay in their posts, but I understand it is an automatic stay,” he said to THE WEEKLY JOURNAL. “But they sure have been busy. I believe they are pushing their agenda forward, being very proactive. They are putting their pieces in play without knowing if they will stay. They are like preempting the court,” he added.
Lara said regardless of the top court’s decision, he believes it is highly unlikely that the FOMB’s work would be invalidated, as some creditors want. “I do not see that happening. They are not going to throw the baby out with the bathwater,” he said, noting that the adjustment plan is being finalized.
The University of Puerto Rico economics professor said he would have liked to see Puerto Rico’s creditors get a bigger cut. Overall, he said would like all creditors to get a 40 percent to 50 percent cut. “If the cuts are too small, which I believe they are, it is unjust for Puerto Rico. It’s a very heavy burden for us, especially after Hurricane Maria,” he said.