Puerto Rico Left Open to More Financial Turmoil

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IEEFA to Congressional Subcommittee on PREPA: Debt Restructuring Plan Before Congress Is Not Realistic and Does Not Hold All Players Accountable; Puerto Rico Left Open to More Financial Turmoil

Bondholders and Financiers Are Not Stepping Up; Citizen Ratepayers and Taxpayers Are Left Holding the Bag Under Current Proposal


March 22, 2017 (IEEFA) —The Institute for Energy Economics and Financial Analysis has written a letter to the chairman of a House subcommittee holding a public hearing today on a plan to restructure the Puerto Rico Electric Power Authority’s $9.5 billion debt.

The letter, signed by IEEFA Director of Finance Tom Sanzillo, describes how the current proposal hurts Puerto Ricans at the expense of bondholders and financiers.

“The debt restructuring plan sells Puerto Rico and its electricity ratepayers (and taxpayers) short by making the situation at PREPA worse,” Sanzillo wrote in a companion blog post. “Further, the proposal would serve, frankly, to damage the island’s already struggling economy.”

“Debt levels remain far too high under the so-called Restructuring Support Agreement (RSA).  Recent projections by the Gov. Ricardo Rosselló’s office and the federally appointed board that oversees implementation of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) show that the commonwealth can cover only perhaps 25 percent of existing bond obligations,” Sanzillo said. “The RSA nonetheless assumes that the power authority has revenues that can support effective repayment rate of 89 percent of existing bond obligations.”

“The proposal before Congress is a raw deal for Puerto Rico and is designed to favor the very Wall Street interests who willfully contributed to the mess that PREPA has become but that are no so willing to bear a fair share of the fallout.”

Excerpts from the letter:

“It is our contention that PREPA does not legitimately owe the full $9.5 billion in outstanding indebtedness. Actions taken by participants in PREPA’s situation and the egregious level of indebtedness incurred suggest a pattern of reckless disregard for PREPA’s financial condition. The Board of PREPA, elected and appointed officials in various positions within the Puerto Rico government, bondholders, underwriters, credit agencies, attorneys, advisors and accountants should share responsibility.”

“It is inconceivable that a reformed PREPA with a cleaned-up balance sheet and an enforceable program of fiscal discipline would be denied access to the capital markets,” Sanzillo said. “It’s been done elsewhere before, maybe nowhere as famously as in Detroit, where the municipal government there has new and robust debt market access after its long and much-publicized period of fiscal turmoil.”

Read the full letter below.

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