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Puerto Rico Based on an Urgent Motion

Wednesday, Apr 25, 2018

Based on an “Urgent Motion” Request to the Court by COFINA, a COFINA-Commonwealth Resolution Through Mediation or by a Court Ruling is Being Anticipated as Occurring “Soon” by Many Market Participants…

COFINA-Commonwealth Mediation or Court Ruling Anticipated Soon… A resolution of the Commonwealth-COFINA dispute is now a distinct possibility within weeks. Both sides now appear willing to participate in mediation. The COFINA Certification by the Puerto Rico Supreme Court motion requested by COFINA (Bondholder) Agent in February was scheduled for a hearing on April 25, 2018. The COFINA (Bondholder) Agent believes that a short adjournment of the Certification Hearing will enable the parties to focus on mediation efforts. The “Urgent Motion” entered late Sunday night by the COFINA (Bondholder) Agent, requests a two week adjournment of the hearing to discuss Certification of COFINA by the Puerto Rico Supreme Court until May 9, 2018. The COFINA(Bondholder) Agent has given prior notice of the relief and adjournment requested in their “Urgent Motion” to the Commonwealth Agent, the Mutual Fund Group, the Puerto Rico Funds, the COFINA Senior Bondholder Coalition, the bond insurers AMBAC, National Public Finance Guarantee Corp, the Ad Hoc Group of General Obligation bondholders, and the Oversight Board, and NONE of these parties have informed the COFINA Agent or the Court that they object to the relief requested and to the two week adjournment to allow for meditation. COFINA bonds are trading at their highest levels since Hurricane Maria and are among the best performing asset classes of 2018.

Pension Reform Required By Federal Oversight Board Helps Certified Fiscal Plan Show a $6.7 Billion Surplus Over Six Years… Higher Tax Collections Reflect Island Economic Uptick…

Higher Surplus, Pension Reform Required By Federal Board Certified Fiscal Plan… Puerto Rico’s certified Fiscal Plan brings a higher surplus for debt service payments. A dialogue with the Island’s governor to implement the Federal Board required pension cuts and labor reform is center stage. “Pensioners are unsecured creditors. The bondholders according to law have more right than pensioners,” Puerto Rico Federal Board Chair Jose Carrion stated that although reforms are painful, they lead to a restructuring acceptable to Puerto Rico’s bankruptcy judge. “What we are trying to do is propose to the judge a restructuring plan that takes into consideration a moderate reduction to be able to meet the long-term pensioners.” Governor Rosselló is opposed to the Fiscal Plans’ pension reforms, cutting vacation, sick days and Christmas bonuses. Governor Rosselló and the Federal Board are in agreement on most issues including privatization of Puerto Rico’s utility. On April 19, 2018, Puerto Rico’s Federal Board certified Fiscal Plans for the Commonwealth, electric and water utility and other entities in a majority vote. The certified Fiscal Plan proposes a six-year $6.7 billion surplus, $400 million higher than an earlier plan the Federal Board rejected. The Fiscal Plan spans six years through 2023 and includes $62 billion cash inflows for rebuilding from federal aid and private insurance. The Commonwealth’s Fiscal Plan includes labor reform and an average cut of 10% in pensions. The Fiscal Plans’ labor reforms aim to increase the current labor participation of 40%, which includes the elimination of the Christmas bonus and a reduction to holidays and sick days. The Fiscal Plan asks to shift future benefits from a defined benefit to defined contribution plan. “If implemented, it is projected that these structural reforms will result in an annual, real and sustainable growth of the Gross National Product of 1.8% for the fiscal year 2023, which would be equivalent to an additional $ 80,000- $ 90,000 million in revenue for the Government through 30 years”, explains the Board. Federal Board Chair Jose Carrion has stated that “we will be fulfilling our duty under federal law. We hope that the Government and the Legislature comply with the mandate of the law,” Should Governor Rosselló not abide by the Federal Board’s Fiscal Plan, the Federal Board will be forced to meet the economic projections by further cutting the Island’s budget. Should the Federal Board resort to litigation, the matter could be before Judge Swain in Puerto Rico Title III bankruptcy court. “The Oversight Board expects the Governor to fully implement the certified Fiscal Plans,” Federal Board counsel stated. Per PROMESA, if the Federal Board’s recommendations are not accepted, the Puerto Rico administration and legislature must specify reasons to the Federal Board, the U.S. President and Congress within 90 days. “The President hopes that the structural reforms imposed by the certified plans will finally begin to guide Puerto Rico down the road to responsibility, balanced budgets and much-needed government reforms,” U.S. House Natural Resources Cmte Chair, Rob Bishop asked Puerto Rico’s administration to implement the Federal Board certified Fiscal Plan. PROMESA co-author Bishop said, “If Puerto Rico does not implement what the Board does, it would be a violation of the law.” Certification of the Fiscal Plans is an important step for bondholders, a Moody’s analyst noted. The fact that the Fiscal Plan is certified by the Federal Board is a positive development for Puerto Rico bondholders looking for a road map for Puerto Rico’s fiscal future. Analysts believe that the plan sets the stage for debt service payments on Puerto Rico bonds. 

Higher Tax Collections Reflect Island Economic Uptick… Higher economic activity post-hurricanes on the Island is noted by Puerto Rico’s Treasury Secretary. Coincident economic indicators, income tax and sales and use tax collections, are ticking higher in recent months relative to prior year. For a third consecutive month, income tax collections surpassed prior year. Similarly, sales and tax collections have exceeded prior year for the last two months. Compared to last year, March 2018 sales and use tax collections are 12.3% higher; February 2018 sales and use tax collections are 5.4% higher. Sales and use tax collections for nine months ended March 2018 were $1.79 billion only 6.8% lower than last year, which is very good considering the effects of two major hurricanes. Puerto Rico’s General Fund revenue through March 2018, $5.83 billion are only 8.4% lower than prior year and only 6.1% lower than projected prior to the storms.

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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