Debtwire’s Puerto Rico Restructuring Conference

Debtwire’s Puerto Rico Restructuring Conference
By Wikideas1 [CC BY-SA 4.0], via Wikimedia Commons

Debtwire’s Puerto Rico Restructuring Forum took place on June 7th 2017.  José Carrión III was unable to participate. His keynote address was  replaced by a fireside chat with Richard J. Cooper of Cleary Gottlieb Steen & Hamilton, Jim Millstein of Millstein & Co. and Paul Greaves of Debtwire explored the likely issues and challenges facing the Puerto Rico government and its creditors in a Title III restructuring. Much of the discussion (besides the debt obviously) involved The Puerto Rico Oversight, Management and Economic Stability Act PROMESA and The Puerto Rico Urgent Interest Fund Corporation AKA COFINA issues. At the bottom of this post is a full agenda so those unfamiliar with the background could find more info about the terms and speakers.

Below are very rough notes on the highlights.

Also see 2017 Hedge Fund Letters

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Millstein rep said full ligation takes 3 yrs and 4 to 5 if remanded at SCOTUS

Cleary said “statutory liens have been partly litigated” – said this in the context of the uncertainty of every stakeholder claim and a lack of precedent. Not sure why he thinks there are only partial patterns related to statutory liens.

· Millstein & Cleary both agree that you need to get to a threat of cram-down before anything gets settled


Key Challenges Facing Illinois’ Municipal Bonds

· Everyone agreed the need to settle the seniority issue between GO and COFINA.

· Millstein said plan needs more details to build confidence and get stakeholder buy-in

· California GO now require secured lien

· Hector Negroni from Fundamental Advisors was really interesting, and I like his views:

o Said Oversight Board and CW have gone rouge PROMESA stay was not long enough to get a real mediation. Said OB and CW had no intention/desire to mediate.

o Cited many concrete ways CW should be cutting costs and criticized CW for not putting in the plan. His family is Puerto Rican, and he goes there a lot.

o Said PR is not like Detroit in that Detroit was destitute while PR is actually doing reasonably well despite the massive debt.

o Said PROMESA is bad and that its enactment was highly politicized by a part-time congressman who has limited experience with bankruptcy. Hates government getting involved in markets.

o But, thinks Judge is the only adult in the room and is fair and considerate and feels stakeholders will get a fair hearing.

· Lockey said there is no value test to determine whether creditors get a fair deal like there is in corp bankruptcy and that the only gating test is that PROMESA states a need for PR to be able to access the capital markets. This leaves a lot of discretion to the Judge which is a significant departure from corp bk.

· Sanchez, the governor’s rep on the OB, said Fiscal Plan can’t be challenged by a court.

· Someone said that 2 days ago in court the Judge alluded to the plan may not be sufficient – not sure where they got this. Maybe need to get transcripts. I’m still looking into that.

More in-depth but still rough notes below.
No one asking the IMF comparison “wrecks economy” and “asking for a bailout” not happening in PR.

PR benefits from association w US – laws, transfers from DC, access to capital markets. – Rodrigue
If PR were to become a state it would have state sov., PROMESA only applies to territories. -Sanchez

PROMESA and the IMF have different reform measures – Sanchez

Scranton, PA, Deep In Debt, Tries To Pick Itself Up

Questioner: If there were an IMF program in place there would be exchange rate devaluation followed by fiscal austerity and reforms.

optimism on Swain: “Title iii gives an opportunity for a level playing field for every party” – Sanchez

Sanchez discussions creation of Enterprise Puerto Rico, a copy of Enterprise Florida ( )

Sànchez: Puerto Rico has to change and let the private sector grow. Too dependent on public sector

Puerto Rico has not included valid expenditures in years past -Sanchez (I feel every gov says it’s being honest than prior)
Sánchez: biggest challenge- how to get to an accurate baseline of expenditures.

Sánchez: biggest problem- how to get to the original baseline of the expenditures.

PROMESA gives the …. board power to make own budget &fiscal plan &certify it if the gov does not comply w/ suggestions – Sanchez

Puerto Rico Debt Compromise Likely, “Bi-partisan Model”

Sanchez (Rossello appointee to oversight board) tells Rodrigue (FA for Sr COFINA holders) it is good to see him outside of courtroom

Sanchez jokes: “Good to see you all outside of the courtroom!”

Tavakoli: stop punishing PR relative to states on Medicaid, it’s the 1 issue driving people from Puerto Rico.

The average state gets 83% back for qualifying patients under Medicaid, PR is <55% – Tavakoli

POTUS Speaker Ryan
…. and any sort of infrastructure funds that are available. This has been difficult with shifting time tables – Mercander Perez

POTUS Speaker Ryan
Similarly working to ensure PR is included beneficially in any sort of tax reform. Lots of time on the hill – Mercander Perez

A dramatic shift in convo of other credits here. Previously laser focused on Illinois, NJ. Now, NJ replaced w/ Connecticut

“COFINA is the original rescue bond and securitization for Puerto Rico.” Rodrigue

If SUT, income tax, other taxes and sources of rev. were being collected there’d be enough $ to go around. – Rodrigue

Rodrigue: if taxes fully collected, there’s enough to go around. You need to maximize the size of the pie.

Rodrigue: my clients (COFINAs) are long on Puerto Rico, we believe in PR.

PR and investors are harmed by pessimism in the plan. – Tavakoli

The best thing DC could do for PR is resolve the healthcare issue. Though guarantees & relief from the Jones Act would be nice-Tavakoli

Port Authority and PRASA require substantial investment which is unavailable in a timely and cost-effective manner – Tavakoli

Debtwire Muni reporter Gregory Clark leads our panel on PuertoRisco’s fiscal reform and economic outlook, alongside plenty of experts

PR and creditors would be harmed by lengthy confrontational cram down plans – Tavakoli

PROMESA’s 6-month litigation stay was an error – Tavakoli

A lot to discuss after the first panel at Debtwire Puerto Rico Restructuring Forum. Networking

Good plans have already been proposed to improve Puerto Rico – look at the kpmg report – Spencer

Negroni: Taylor Swain will play it fair, down the middle and call balls and strikes. Both sides need an adult in the room.




The board “should have had a dual mandate between economic growth &not impairing debt.” now acting as economic growth is priority-Prager
Spencer points out that the board is acting rationally – they know the creditors have no defenses.

Spencer shows that the board is acting rationally – they know the creditors have no defenses.

“promesa was entirely born out of political (needs) in an election year to try and sway the Latino vote.” Negroni

Prager alludes to potential fights between other creditors on GDB deal

Spencer- if PREPA deal doesn’t get done, single biggest condemnation of conduct of oversight board

“if (PREPA) doesn’t get done I think that may be the single most significant condemnation of the (behavior) of the oversight board.”-Spencer

Negroni reminds Resnick (worked with GDB) of the fact that PREPA has been stalled in front of the board on its title 6

Judge Swain alluded Monday that the fiscal plan may not be enough to support a plan of adjustment – Negroni

Prager- non-debt service expenses up 700m in this FY. Where’s the oversight board, which is supposed to be cutting expenses?

“if you look at non-debt service expenses from last year’s budget to this year’s budget they are up by USD 700m” – Prager

This came from Spencer.
One deficiency of plan is a lack of clarity around P3 projects – unclear if estimates are upfront payments or operational savings

One weakness of program is a lack of clarity around P3 projects – unclear if estimates are upfront payments or operational savings

Negroni- Commonwealth not insolvent at GO level- there’s a huge list of things that could be done efficiently

“Without clarity from a judge….a mediation process won’t move forward” – Hector Negroni, Fundamental Advisors PuertoRico

Negroni: Oversights board, Commonwealth has gone rogue regarding complying with PROMESA

Lots of discussion of Detroit. Negroni says Detroit was destitute, PR is poorly run and poorly governed.
Prager- there’s no precedent for mediation but oversight board not willing to participate, either. OB needs to be compelled to mediate

Discontent with the plan here – recently PR found a billion dollars of revenues and an exactly offsetting billion dollars of expenses

Title 6 is good for isolated boxes GDB and PREPA – Prager

Prager: when other entities (Detroit, Philly, NY) came to market after r/s, a sovereign above offered security

“the first crux of the dispute is if you can actually sell a taxing power.” – Prager of GO and COFINA debate

“We didn’t want to find ourselves in Title III…” discussions kicking off at Debtwire’s PuertoRico Restructuring Forum.

when entities w/o restructuring frameworks have wanted market access, they’ve imposed reforms upon themselves.

Two panelists so far have said that they are glad they’re in front of a judge, but that they’d rather PROMESA didn’t exist

AGP pitted creditors against each other to decrease payouts & fund a bloated private sector. Rossello was on the same path-Negroni

. Debtwire_Munis’s Seth Brumby leads our panel on creditor negotiations inside & outside the credit complex. PuertoRico

Millstein: to maintain market access for all states and Puerto Rico, investors will require a statutory lien for GOs

“there isn’t a structure in the municipal market that wasn’t tried in Puerto Rico.” – Jim Milstein

There has been criticism for not decreasing expenses enough, but PR put pension payments back on its budget which masks some improvement
“What is not obvious is the means for implementation for the various expense reductions….” -Jim Milstein providing insight at
Cooper: a “cage fight” between GOs and COFINAs a strategic mistake.
.jimmillstein described this like the 2nd or 3rd inning of Puerto Rico’s restructuring.
“Our hope when we were involved was that parties would understand the uncertainties” -Richard Cooper of ClearyGottlieb PuertoRico
Cooper: the statutory lien has been “hardly litigated,” constitutionality of PROMESA has “never been litigated.”
“if you look at every part of the debt stack you can pick out vulnerabilities from a legal perspective.” – Cooper

“if you look at every part of the debt stack you can pick out vulnerabilities from a legal perspective.” – Cooper

Current PR fiscal plan has a contingency reserve – if that is eliminated, PR is holding the risk of revenue shortfalls
“this fiscal plan will be amended for sure.” – Cooper saying the silence on priorities is in violation of PROMESA.
The resolution of COFINA v. GO could take 3+ years if litigated to SCOTUS. Better for all parties to resolve sooner- Jim Millstein
Cooper: the only “for sure” here will come from SCOTUS

“on the margin creditor recoveries are enhanced by speed and hurt by the delay.”- Jim Millstein
. Debtwire_Munis’s Paul Greaves kicks off with Cleary Gottlieb’s Richard Cooper & Millstein & Co.’s Jim Millstein
Richard Cooper – “If you’re doing, you’re 4th annual conference on a restructuring that’s not a good sign.”
Kicking things off with Jim Milstein, Greaves and Richard Cooper

Agenda via DebtWire below

Debtwire Fireside Chat

Debtwire Municipals Managing Editor Paul Greaves, Cleary Gottlieb Partner Richard J. Cooper and Millstein & Co. Founder and CEO Jim Millstein will explore the likely issues and challenges facing the Puerto Rico government and its creditors in a Title III restructuring and what it will all mean for other stakeholders, such as pensioners and Medicaid recipients.


    • Richard J. Cooper, Partner, Cleary Gottlieb Steen & Hamilton LLP
    • Jim Millstein, Founder and Chief Executive Officer, Millstein & Co.
    Paul Greaves, Managing Editor, Debtwire Municipals (moderator)


PROMESA – Creditor Negotiations Inside and Outside the Credit Complex

The Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) has asserted itself as the referee upon the playing field of restructuring talks. In the first panel, participants will discuss the restructuring process, negotiations between debtors and creditors, and inter-creditor tensions:

    • Title III seems to pit creditors against the oversight board. What leverage do creditors have?
    • Will a confrontational approach with the island and its leadership deepen inter-creditor tensions?

PROMESA – Speakers

    • Hector Negroni, Principal, Fundamental Advisors
    • David Prager, Managing Director, Goldin Associate
    • Brian Resnick, Partner, Davis Polk & Wardwell LLP
    • Stephen Spencer, Managing Director, Houlihan Lokey
    • Seth Brumby, Deputy Editor, Debtwire Municipals (moderator)


Coffee Networking Break


Fiscal Reform and Economic Outlook

Governor Rossello has had to balance contentious reforms with maintaining some semblance of the status quo. There are indications that the Rossello administration disagrees with the PROMESA oversight board on fiscal and structural reforms. This political tussle has contributed to a hazy political and economic outlook. Meanwhile, on the ground, union workers are suing the state over a 2014 law barring salary increases to public workers. Additional pressure from Puerto Rico’s public health care system’s funding shortfalls will affect its most needy and poor. To top it off, a June 11 referendum will ask voters if Puerto Rico should become the US’ 51st state or seek complete independence.

    • How has the dynamic so far played out between the new administration and the oversight board?
    • What reforms has the oversight board so far demanded that the government has enacted, or resisted?
    • Will we need to see additional legislation in Washington DC?
    • How does the island complete a turnaround with its current healthcare crisis?
    • How does statehood or independence affect the island’s outlook?


    • Carlos R. Mercader Pérez, Executive Director, Puerto Rico Federal Affairs Administration
    • Matthew Rodrigue, Managing Director, Miller Buckfire & Company
    • Elías Sánchez, Governor’s Representative, Financial Oversight and Management Board for Puerto Rico
    • Nader Tavakoli, Founder and CEO, EagleRock Capital Management LLC
    Gregory A. Clark, Head of Municipal Research, Debtwire Municipals (moderator)



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