After tensions between the Fiscal Oversight Board (FOB) and Governor Ricardo Rosselló’s administration over required cuts to balance the budget began to subside, new strains have flared up. This time, the disagreement is over an unexpected letter sent by FOB Chairman, José Carrión, to Rosselló’s non-voting representative on the Board, Elías Sánchez. In his letter, Carrión said that Puerto Rico is required to submit draft legislation before it’s introduced in the Legislature to allow the FOB to certify its fiscal impact. Sánchez responded that PROMESA only requires laws to be sent to the Board after they are enacted and with a fiscal impact statement, so the Board may certify their compliance with the fiscal plan. Earlier this month, Rosselló was granted an extension to submit his plan before the end of the month; therefore, the Administration believes the provision does not apply. Rosselló emphasized that he would not comply with the Board’s request because he considered it an attack on Puerto Rico’s autonomy but that he wanted to continue the spirit of collaboration between his team and the Board.
Resident Commissioner Jenniffer González apparently also had choice words for the FOB this week, insisting that the Board must do more to advocate for Puerto Rico in Congress.
GOs to be partially paid
After promising, during his campaign, to pay the debt as is, Governor Rosselló appeared to be backtracking at the beginning of his administration. He even signed a revamped version of the Debt Moratorium Law and defaulted on some payments at the beginning of the year, including General Obligation (GOs) bond payments but paid Sales Tax Corporation (COFINA in Spanish) debt. However, Rosselló most recently announced his plans to pay $1.3 million in GO interest missed on February 1st and to use $147 million currently at a Banco Popular account to pay part of the GO’s remaining debt.
Another default on the horizon
Puerto Rico will soon have to face the choice of paying creditors of Pension Obligation Bonds (POB) or honoring the pensions of 137,000 public retirees. POB bondholders received about $14 million in interest payments in February, but that may be the last payment. The Puerto Rico Fiscal Agency & Financial Advisory Authority (AAFAF in Spanish) reported that the Bank of New York Mellon (BNYM), withdrew about $13.8 million from the reserves and service account of the government debt to apply it to the monthly payment of interests. The withdrawal reduced less than half the money available to pay creditors.
Without POB reserve funds, the Retirement Systems Administration (ASR in Spanish) would enter a definitive default with the bondholders and possibly with pensioners. According to Moody’s, the rate of monthly withdrawals from the service account for the POB debt would allow another $14 million to be paid to bondholders on March 1st. Virtually all the $2.948 billion that the ASR owes is in the hands of Puerto Rican investors, most of whom depend on interest income for their livelihood.
GDB looking to sell $51.3 million in real estate assets
The Government Development Bank for Puerto Rico (GDB) is trying to sell about $51.3 million in real estate properties in the Island. Many of the properties belonged to companies no longer in operation. Given GDB’s liquidity is less than $174 million, completing these sales would improve the Bank’s position. Some of the properties have been on the market for more than 5 years.