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Monday, Sep 25, 2017

Seema Balwada, CFA / September 25,2017

Restoring Puerto Rico’s Infrastructure With Federal Relief Funding Should Mitigate Near Term Challenges… U.S. Lawmakers Offer Bipartisan Support to “Rebuild a Better” Puerto Rico…

Federal relief funding after Hurricanes Irma and Maria should mitigate Puerto Rico's near term challenges and may even help spur renewed economic growth over time. Though an immediate setback for creditors, we expect Puerto Rico to benefit from substantial federal aid under the Stafford Act, including funds from the Federal Emergency Management Agency (FEMA). After Hurricane Georges hit Puerto Rico in 1998, the Commonwealth and its subdivisions received over $600 million in FEMA funds. “Together with federal aid and insurance funds, the recovery and rebuilding effort after Hurricane Georges stimulated economic growth in Puerto Rico,” a Moody’s analyst stated. Other analysts state that to the extent that federal aid promotes the rebuilding of infrastructure in Puerto Rico, there may be a positive effect on the finances of the Island’s major bond issuers down the road. The bond insurers, who are already paying interest on default-ed Puerto Rico debt, may eventually see some improvement in the fortunes of the issues they insure.

It has been just days since Hurricane Maria hit Puerto Rico. Today FEMA Chief Brock Long announced that there are now about 10,000 U.S. Federal employees in Puerto Rico helping with the recovery. Governor Rosselló has thanked Pres-ident Trump for the federal assistance saying “FEMA has done a phenomenal job providing assistance.”

Hurricane Maria pounded the entire Island of Puerto Rico and the visual scope of the damage is horrific, however, the long term effects are unclear. President Trump has declared Puerto Rico a major disaster and pledged the full support of the U.S. Government. New York Governor Andrew Cuomo was in Puerto Rico where he told reporters this weekend that the devastation left by Hurricane Maria presents an opportunity to “rebuild a better” Puerto Rico.

Governor Rosselló has not released official damage estimates yet, however, pointed to the impact of Hurricane Georges, the last storm that had a direct hit on the Island back in 1998 which had a $7 to $8 billion impact.

FEMA teams were already in Puerto Rico earlier this month working on relief efforts following Hurricane Irma and sprung into reconnaissance and search-and-rescue missions as soon as Maria’s winds died down. FEMA is widely known as the Federal Disaster Recovery Agency, but it’s also involved in dispatching rescue teams, gathering intel and assessing dam age in the first chaotic days of a disaster.

Large amounts of aid from the U.S. Federal Government have begun moving into Puerto Rico, welcomed by local of-ficials who praised the Trump administration’s response. People started moving into their homes on Saturday and the opening of the Island's main port in the capital allowed 11 supply ships to bring in equipment, generators and food.

On Thursday, the Fiscal Board created by the Federal PROMESA law authorized the reassignment of up to $1 billion in funds under the current budget. Governor Rosselló has said, this amount won’t be enough to tackle the Common-wealth’s financial needs related to the recovery efforts from Hurricane Maria. “The Board gives us the flexibility of $1 billion to address the emergency. That is a resource we have, but we will solicit more,” the Governor said.

At the Federal Government level, Governor Rosselló announced Puerto Rico will solicit “waivers and mechanisms” in Washington, DC, to help the Island get back on its feet. For instance, congresswoman Nydia Velázquez (D-N.Y.), stated on Friday she will push for a one-year exemption to the Jones Act on the Island. Governor Rosselló also stated that Puerto Rico will not collect much in taxes in the next month.

Assistance can include grants for temporary housing and home repairs, low-cost loans to cover uninsured property losses and other programs to help individuals and business owners recover from the effects of the disaster. Federal fund-ing is also available to the Commonwealth and to eligible local governments and certain private not-for-profit organiza-tions on a cost-sharing basis for emergency work in all 78 municipalities of the Commonwealth. President Trump may exempt the Island from any cost-sharing. Furthermore, federal funding is available for hazard mitigation measures throughout the Commonwealth. “Damage assessments are continuing in other areas, and additional forms of assistance may be designated after the assessments are fully complete,” the White House stated.

“Congress is working with the administration to ensure necessary resources get to Puerto Rico,” stated House Speaker Paul Ryan.

Senior congressional aides in both parties said late Sunday that the Federal Emergency Management Agency isn't ex-pected to ask lawmakers for a new round of federal disaster relief funding until mid-October, meaning that the agency thinks it has enough money currently at its disposal to cover major disaster recovery operations nationwide. Absent a for-mal request from the Trump administration, lawmakers cannot begin work on a federal relief bill for the latest round of damage caused by record-setting hurricanes, the aides said.

Whenever lawmakers get around to passing such legislation, Rosselló wants them to remember: “This is a major dis-aster, not unlike Katrina or Sandy. There is going to be a hefty toll for us to make sure that we can reestablish normalcy and build Puerto Rico back stronger.”

The aftermath of punishing hurricanes has gripped the attention of U.S. lawmakers. Hurricanes Harvey, Irma and Ma-ria caused 100’s of billions in damages to Texas, Florida, the U.S. Virgin Islands and Puerto Rico, according to Moody’s Analytics. A group representing U.S. States and local governments is asking Congress to create a new category of federal tax-exempt bonds that can be used to rebuild. The Columbus, Ohio-based Council of Development Finance Agencies is pushing for lawmakers to give governments permanent, additional authority to access low-cost financing to spur private redevelopment projects. House Ways and Means Cmte Chair Kevin Brady has unveiled tax relief legislation for hurricane hit areas including Puerto Rico.

Governor Rosselló has praised the federal effort. “This is the first time we get this type of federal co-ordination," said Resident Commission Jennifer Gonzalez, Puerto Rico’s non-voting representative in Washington. House Natural Re-sources Cmte, Chair Rob Bishop, stated that his congressional committee which co-authored PROMESA, “will advocate for the full support of the Federal Government”.

Governor Rosselló has said power will be out for weeks or months. However, Puerto Rico will get power much faster, and already is. Big generators combined with the hundreds of electric industry workers who are already descending from the mainland with emergency equipment have already re-powered many critical sites, major population centers will take days or a few weeks.

Some Puerto Ricans see acres of devastation, or even partial damage, as a tragedy. Others see a blank slate and a chance to make radical changes. While Puerto Rico can rely on a stopgap electrical system for a while, building a main-land-style grid will take billions, billions that customers don’t have. This, too, will require government subsidies, that may have to be paid, in part, by the bondholders to whom Puerto Rico already owes money. Washington may have to offer ffer  low-interest or zero-interest loans to the electric utility.

Specialist brigades have arrived from agencies such as FEMA, the U.S. Corps of Engineers, the Federal Department of Health, the Defense Department and various states.

There is bipartisan support in Congress advocating for federal funding to swiftly repair and rebuild Puerto Rico’s electric grid, help small business recover and address other infrastructure problems.

On Sep 19 the Court entered an order requiring the Oversight Board to file an informative motion no later than Tues-day, Sep 26 at 12:00 pm regarding the status of matters scheduled for the Oct 4 Omnibus Hearing and the logistics con-cerning such hearing. In light of the extensive damage and devastation in Puerto Rico resulting from Hurricane Maria, the Oversight Board is directed to confer with the Plaintiffs regarding whether, (i) the hearing should proceed as scheduled, (ii) the hearing should be adjourned to afford the residents of Puerto Rico the ability to view the oral argument locally, or (iii) the motion should be taken on submission by the Court, without oral argument. The Oversight Board must inform the Court of the parties’ views in the above referenced informative motion.

Puerto Rico bond prices have declined, as expected, and probably will not recover until the uncertainty as to the length of delays to mediation, negotiations, court hearings and the amount of federal aid can be determined.

Debt restructuring may be delayed as other issues take priority such as restoring utilities, reopening ports, clearing de-bris and maximizing federal aid.

Hurricane Maria may not weaken Puerto Rico’s Government and Oversight Board’s tough stance with bondholders. However, the need to have access to the bond market may become more apparent to Judge Swain who is overseeing Puer-to Rico’s debt restructuring.

 Bond insurers, hedge funds, mutual funds including Oppenheimer and Franklin Templeton, bondholders including Goldman Sachs and UBS will continue to spend millions of dollars to protect bondholder rights and remedies.

FEMA Federal Aid Programs For The Commonwealth Of Puerto Rico
The Following is a summary of key federal disaster aid programs available as needed and warranted under President Donald J. Trump’s disaster declaration issued for the Commonwealth of Puerto Rico.

FEMA Assistance for Puerto Rico’s Affected Individuals and Families Can Include as Required:

Rental payments for temporary housing for those whose homes are unlivable. Initial assistance may be provided for up to three months for homeowners and at least one month for renters. Assistance may be extended if request-ed after the initial period based on a review of individual applicant requirements.

Grants for home repairs and replacement of essential household items not covered by insurance to make damaged dwellings safe, sanitary and functional.

Grants to replace personal property and help meet medical, dental, funeral, transportation and other serious disaster-related needs not covered by insurance or other federal, municipal and charitable aid programs.

Unemployment payments up to 26 weeks for workers who temporarily lost jobs because of the disaster and who do not qualify for Commonwealth benefits, such as self-employed individuals.

Low-interest loans to cover residential losses not fully compensated by insurance. Loans available up to $200,000 for primary residence; $40,000 for personal property, including renter losses. Loans available up to $2 million for business property losses not fully compensated by insurance.

Loans up to $2 million for small businesses, small agricultural cooperatives and most private, non-profit organizations of all sizes that have suffered disaster-related cash flow problems and need funds for working capital to recover from the disaster's adverse economic impact. This loan in combination with a property loss loan cannot exceed a total of $2 million.

Loans up to $500,000 for farmers, ranchers and aquaculture operators to cover production and property losses, excluding primary residence.

Other relief programs: Crisis counseling for those traumatized by the disaster; income tax assistance for filing casualty losses; advisory assistance for legal, veterans’ benefits and social security matters.

FEMA Assistance for the Commonwealth and Local Governments Can Include as Required:

Payment of not less than 75% of the eligible costs for debris removal and emergency protective measures taken to save lives and protect property and public health.  Emergency protective measures assistance, including direct federal assistance is available to Commonwealth and local governments on a cost-sharing basis.

Payment of not less than 75% of the eligible costs for repairing or replacing damaged public facilities, such as roads, bridges, utilities, buildings, schools, recreational areas, and similar publicly owned property, as well as certain private non-profit organizations engaged in community service activities.

Payment of not more than 75% of the approved costs for hazard mitigation projects undertaken by the Commonwealth to prevent or reduce long term risk to life and property from natural or technological disasters.

President Trump is expected to lift the cost-sharing requirement for FEMA assistance to the Commonwealth to azero cost-sharing basis, allowing the U.S. Government to pay 100% for FEMA assistance to Puerto Rico.

Application procedures for the Commonwealth and eligible local governments will be explained at a series of appli-cant briefings with locations to be announced in the affected area by recovery officials. Approved public repair projects are paid through the Commonwealth from funding provided by FEMA and other participating federal agencies.

If you have any questions or desire updated information contact your GMS Account Executive. Information taken from sources deemed reliable. This update does not purport to include all available information

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