Puerto Rico Gov. Alejandro García Padilla said Thursday that a Puerto Rico tax reform proposal will be ready in October, which would be sooner than had been anticipated.
by
Puerto Rico Tax Reform Coming in October
Saturday, August 30, 2014
Friday, August 29, 2014
Nova Southeastern University Opens its New Regional Campus in Puerto Rico on Aug. 28
Fort Lauderdale-Davie, Fla. - Nova Southeastern University (NSU) is set to reconfirm its commitment to Puerto Rico with the grand opening of a new regional campus in San Juan. The new campus represents an expansion of offerings at NSU and also provides increased opportunities for students university-wide.
A ribbon cutting ceremony is scheduled at the new campus at 10:30 a.m. on Thursday, August 28 to celebrate the opening of a new four-story, state-of-the-art building. NSU will be offering master’s and doctoral degrees in pharmacy and education at the new campus, located in San Juan’s Professional Offices Park IV. The new regional campus will have an estimated $27 million economic impact on the island this fiscal year alone.
“Nova Southeastern University is committed to helping educate residents of San Juan so they get a quality education leading to good jobs, and allowing them to do so without leaving their families,” said George L. Hanbury II, Ph.D., president and CEO of Nova Southeastern University. “It also brings with it a tremendous opportunity for students from the mainland seeking upper level degrees in pharmacy and education to spend time living and studying in a beautiful Caribbean location.”
The facility is equipped with more than 37,000 sq. ft. of classrooms, state-of-the-art technology, computer labs, videoconferencing, a multi-purpose room, drug information center, a wet lab, offices and a fitness center to name a few.
Diverse methods of course delivery for students at the San Juan Campus will mirror those of the main campus in Ft. Lauderdale-Davie, Florida and include face-to-face, online, and blended formats.
Andres Malavé, M.S., Ph.D., executive director of the NSU San Juan campus, stressed that NSU has a nearly 40-year history with Puerto Rico, serving students of Puerto Rico who attended class on the university’s main campus. NSU offered instructional opportunities on the island starting in 1995 as a result of changes in pharmaceutical requirements (Pharm.D.). Currently more than 350 pharmacy and education students are enrolled at NSU in Puerto Rico.
“Our students will benefit from this new campus through opportunities to obtain masters and doctorate degrees in the areas of education and pharmacy with the same quality of education from a top university without having the significant economic impact that comes along with studying abroad,” Malavé said.
NSU has additional regional campuses in Miami, Miramar, Fort Myers, Palm Beach, Orlando, Tampa and Jacksonville.
# # #
About Nova Southeastern University: Situated on 314 beautiful acres in Fort Lauderdale, Florida, Nova Southeastern University (NSU) is a dynamic research institution dedicated to providing high-quality educational programs at all levels. NSU is a not-for-profit independent institution with 26,000 students. NSU awards associate’s, bachelor’s, master’s, specialist, doctoral and first-professional degrees in a wide range of fields. NSU is classified as a research university with “high research activity” by the Carnegie Foundation for the Advancement of Teaching, and it is one of only 37 universities nationwide to also be awarded Carnegie’s Community Engagement Classification. For more information, please visit www.nova.edu. Celebrating 50 years of academic excellence!
New expanded educational opportunities for students here and abroad
Nova Southeastern University Opens its New Regional Campus in Puerto Rico on Aug. 28
A ribbon cutting ceremony is scheduled at the new campus at 10:30 a.m. on Thursday, August 28 to celebrate the opening of a new four-story, state-of-the-art building. NSU will be offering master’s and doctoral degrees in pharmacy and education at the new campus, located in San Juan’s Professional Offices Park IV. The new regional campus will have an estimated $27 million economic impact on the island this fiscal year alone.
“Nova Southeastern University is committed to helping educate residents of San Juan so they get a quality education leading to good jobs, and allowing them to do so without leaving their families,” said George L. Hanbury II, Ph.D., president and CEO of Nova Southeastern University. “It also brings with it a tremendous opportunity for students from the mainland seeking upper level degrees in pharmacy and education to spend time living and studying in a beautiful Caribbean location.”
The facility is equipped with more than 37,000 sq. ft. of classrooms, state-of-the-art technology, computer labs, videoconferencing, a multi-purpose room, drug information center, a wet lab, offices and a fitness center to name a few.
Diverse methods of course delivery for students at the San Juan Campus will mirror those of the main campus in Ft. Lauderdale-Davie, Florida and include face-to-face, online, and blended formats.
Andres Malavé, M.S., Ph.D., executive director of the NSU San Juan campus, stressed that NSU has a nearly 40-year history with Puerto Rico, serving students of Puerto Rico who attended class on the university’s main campus. NSU offered instructional opportunities on the island starting in 1995 as a result of changes in pharmaceutical requirements (Pharm.D.). Currently more than 350 pharmacy and education students are enrolled at NSU in Puerto Rico.
“Our students will benefit from this new campus through opportunities to obtain masters and doctorate degrees in the areas of education and pharmacy with the same quality of education from a top university without having the significant economic impact that comes along with studying abroad,” Malavé said.
NSU has additional regional campuses in Miami, Miramar, Fort Myers, Palm Beach, Orlando, Tampa and Jacksonville.
# # #
About Nova Southeastern University: Situated on 314 beautiful acres in Fort Lauderdale, Florida, Nova Southeastern University (NSU) is a dynamic research institution dedicated to providing high-quality educational programs at all levels. NSU is a not-for-profit independent institution with 26,000 students. NSU awards associate’s, bachelor’s, master’s, specialist, doctoral and first-professional degrees in a wide range of fields. NSU is classified as a research university with “high research activity” by the Carnegie Foundation for the Advancement of Teaching, and it is one of only 37 universities nationwide to also be awarded Carnegie’s Community Engagement Classification. For more information, please visit www.nova.edu. Celebrating 50 years of academic excellence!
New expanded educational opportunities for students here and abroad
Nova Southeastern University Opens its New Regional Campus in Puerto Rico on Aug. 28
Nova Southeastern University Opens its New Regional Campus in Puerto Rico on Aug. 28
FORT LAUDERDALE-DAVIE, Fla., Aug. 28, 2014 /PRNewswire/ -- Nova Southeastern University (NSU) is set to reconfirm its commitment to Puerto Rico with the grand opening of a new regional campus in San Juan. The new campus represents an expansion of offerings at NSU and also provides increased opportunities for students university-wide.
New expanded educational opportunities for students here and abroad
Nova Southeastern University Opens its New Regional Campus in Puerto Rico on Aug. 28
New expanded educational opportunities for students here and abroad
Nova Southeastern University Opens its New Regional Campus in Puerto Rico on Aug. 28
Thursday, August 28, 2014
WAPA America, the cable network destination for Puerto Ricans and Caribbean Hispanics in the U.S., Becomes Nielsen-Rated
WAPA America has reached an agreement with Nielsen, the global information and measurement company, to become a nationally-rated cable network. WAPA America is the cable arm of WAPA-TV, Puerto Rico’s leading broadcaster. WAPA America will be reported in Nielsen’s national data beginning as of August 2014, to be available on September 28.
Launched in the U.S. in 2004, WAPA America is seen in more than five million homes and is distributed by all major cable, satellite and telco providers. WAPA America broadcasts approximately 70 hours per week of original news and entertainment programming, as well as local movies, telenovelas and major sporting events like “Baloncesto Superior Nacional” (National Superior Basketball), Puerto Rico’s most popular professional sports league. WAPA America airs more live programming than any major U.S. Spanish-language broadcast network.
“We’ve been analyzing preliminary Nielsen data for several months and we are very excited with the findings, which confirm that WAPA America has a large and loyal audience,” said Alan J. Sokol, President of WAPA’s parent company, Hemisphere Media Group.
Twenty-six year television sales veteran and former SVP of Network Sales at Univision Network, Nicolas J. Valls, was named Hemisphere’s EVP of Advertising Sales in October of 2013 and will oversee national ad sales for WAPA America.
“We know WAPA America appeals to the 10 million Puerto Ricans and Caribbean Hispanics living the US, but now we’ll have the data to back it up,” said Valls. “WAPA America offers a unique and highly-valuable proposition to national advertisers who want to get their messages in front of the second largest Hispanic community in the U.S. in content uniquely aligned to its culture and interests.”
Founded in 1954, WAPA Television is Puerto Rico’s number one broadcast station with the highest primetime and full day ratings in Puerto Rico. WAPA Television produces the most local entertainment programming on the island, and is Puerto Rico’s news leader with more than 30 hours per week of local news coverage produced by the largest and most-trusted news network on the island.
WAPA America is one of five U.S. cable networks owned by Hemisphere Media Group, alongside: Cinelatino, the leading US Spanish-language movie channel; Pasiones, dedicated to showcasing the most popular telenovelas and series; Centroamerica TV, the leading network targeting the third largest US Hispanic group that features popular news, entertainment and soccer programming from Central America; and Television Dominicana, the top network targeting U.S. Dominicans with popular entertainment, baseball and news programming from the Dominican Republic.
About WAPA America: WAPA America is the U.S. cable network affiliated with WAPA Television, Puerto Rico’s leading broadcast network with the highest primetime and full day ratings on the island. WAPA Television produces the most local entertainment programming in Puerto Rico, and is the island’s news leader with more than 30 hours per week of local news coverage produced by the largest and most-trusted news network in Puerto Rico. WAPA America is currently viewed in more than five million homes throughout the U.S. and distributed on major cable, satellite and telecommunications providers, including Comcast, Time Warner Cable, Cablevision, Cox Communications, Bright House Networks, DirecTV, Dish Network, Verizon FiOS, and AT&T U-verse. WAPA America is a subsidiary of Hemisphere Media Group, Inc., the only publicly traded, pure-play U.S. Hispanic TV/cable networks and content platform. For more information, please visit www.wapa.tv.
Contact: WAPA America, the cable network destination for Puerto Ricans and Caribbean Hispanics in the U.S., Becomes Nielsen-Rated
Launched in the U.S. in 2004, WAPA America is seen in more than five million homes and is distributed by all major cable, satellite and telco providers. WAPA America broadcasts approximately 70 hours per week of original news and entertainment programming, as well as local movies, telenovelas and major sporting events like “Baloncesto Superior Nacional” (National Superior Basketball), Puerto Rico’s most popular professional sports league. WAPA America airs more live programming than any major U.S. Spanish-language broadcast network.
“We’ve been analyzing preliminary Nielsen data for several months and we are very excited with the findings, which confirm that WAPA America has a large and loyal audience,” said Alan J. Sokol, President of WAPA’s parent company, Hemisphere Media Group.
Twenty-six year television sales veteran and former SVP of Network Sales at Univision Network, Nicolas J. Valls, was named Hemisphere’s EVP of Advertising Sales in October of 2013 and will oversee national ad sales for WAPA America.
“We know WAPA America appeals to the 10 million Puerto Ricans and Caribbean Hispanics living the US, but now we’ll have the data to back it up,” said Valls. “WAPA America offers a unique and highly-valuable proposition to national advertisers who want to get their messages in front of the second largest Hispanic community in the U.S. in content uniquely aligned to its culture and interests.”
Founded in 1954, WAPA Television is Puerto Rico’s number one broadcast station with the highest primetime and full day ratings in Puerto Rico. WAPA Television produces the most local entertainment programming on the island, and is Puerto Rico’s news leader with more than 30 hours per week of local news coverage produced by the largest and most-trusted news network on the island.
WAPA America is one of five U.S. cable networks owned by Hemisphere Media Group, alongside: Cinelatino, the leading US Spanish-language movie channel; Pasiones, dedicated to showcasing the most popular telenovelas and series; Centroamerica TV, the leading network targeting the third largest US Hispanic group that features popular news, entertainment and soccer programming from Central America; and Television Dominicana, the top network targeting U.S. Dominicans with popular entertainment, baseball and news programming from the Dominican Republic.
About WAPA America: WAPA America is the U.S. cable network affiliated with WAPA Television, Puerto Rico’s leading broadcast network with the highest primetime and full day ratings on the island. WAPA Television produces the most local entertainment programming in Puerto Rico, and is the island’s news leader with more than 30 hours per week of local news coverage produced by the largest and most-trusted news network in Puerto Rico. WAPA America is currently viewed in more than five million homes throughout the U.S. and distributed on major cable, satellite and telecommunications providers, including Comcast, Time Warner Cable, Cablevision, Cox Communications, Bright House Networks, DirecTV, Dish Network, Verizon FiOS, and AT&T U-verse. WAPA America is a subsidiary of Hemisphere Media Group, Inc., the only publicly traded, pure-play U.S. Hispanic TV/cable networks and content platform. For more information, please visit www.wapa.tv.
- Professional Services
- Television
- WAPA America
- Puerto Rico
Rushmore Loan Management to Expand Into Puerto Rico | Mortgage News | Daily National and State Headlines
Rushmore Loan Management Services LLC has announced plans to extend its specialty residential loan servicing platform to Puerto Rico. The company will open a new branch in San Juan, Puerto Rico, which will be fully operational by Nov. 1, 2014. According to Rushmore CEO Terry Smith, Rushmore will immediately begin servicing approximately 4,000 residential loans and real estate-owned (REO) properties when the branch office opens in November. The company plans to hire approximately 50-60 new employees in the San Juan office.
“Rushmore believes that servicing local residential loans in Puerto Rico with local staff is the right strategy for the company and our Puerto Rican borrowers,” Smith said. “Investing in local talent and growing our operation on the island supports our commitment to continued investments in the Puerto Rican marketplace.”
Smith says Rushmore is already looking for talented individuals with mortgage servicing experience to join the Company.
“We have begun hiring and will continue to hire professionals who want to enhance their career and work with an industry leading company,” Smith said. “We plan to grow the Puerto Rico branch alongside our Dallas and Irvine offices by acquiring additional mortgage portfolios, onboarding new sub-servicing residential loan pools and purchasing mortgage servicing rights (MSRs).”
Rushmore Loan Management to Expand Into Puerto Rico | Mortgage News
“Rushmore believes that servicing local residential loans in Puerto Rico with local staff is the right strategy for the company and our Puerto Rican borrowers,” Smith said. “Investing in local talent and growing our operation on the island supports our commitment to continued investments in the Puerto Rican marketplace.”
Smith says Rushmore is already looking for talented individuals with mortgage servicing experience to join the Company.
“We have begun hiring and will continue to hire professionals who want to enhance their career and work with an industry leading company,” Smith said. “We plan to grow the Puerto Rico branch alongside our Dallas and Irvine offices by acquiring additional mortgage portfolios, onboarding new sub-servicing residential loan pools and purchasing mortgage servicing rights (MSRs).”
Rushmore Loan Management to Expand Into Puerto Rico | Mortgage News
Doral says conflict with Puerto Rico govt could impact economy
The Puerto Rican government's failure to reach an agreement with local bank Doral Financial could lead to declines in investment, GDP growth and revenue that far outweigh the cost of settling with the bank, said Doral advisor Robert Shapiro.
Doral reported on Tuesday that court-supervised negotiations with the treasury – over US$229mn in tax receivables allegedly owed to the bank – had broken down.
"It is an expensive proposition for Puerto Rico to renege on its agreements, and as a result, the government is squandering what little credibility it has left with investors," said Shapiro, former US Undersecretary of Commerce, in a report.
The treasury department was not immediately available for comment on the report.
Doral filed a lawsuit against the Puerto Rican government in June after the treasury allegedly cancelled an agreement to repay US$229mn in overpaid taxes.
Following the failure of negotiations, the two parties will resume their legal battle in a trial set for September 16-18.
"It is a disturbing trend and an unfortunate result because there could have been an amicable resolution to this matter," said Shapiro.
At end-April, regulators ruled that Doral could no longer include the tax receivables in its calculation of Tier 1 capital, forcing the lender to revise its capital plan and causing its share price to plummet 61% in a single day.
In June, the bank was classified as "undercapitalized" by the US Federal Deposit Insurance Corporation (FDIC), and the following month reached an agreement to sell residential and commercial assets worth approximately US$825mn to Abbey Finance Holdings.
Doral also revealed earlier this month that it received a subpoena from the US Securities and Exchange commission (SEC) related to an investigation into its 3Q13 regulatory filings.
Doral says conflict with Puerto Rico govt could impact economy
Doral reported on Tuesday that court-supervised negotiations with the treasury – over US$229mn in tax receivables allegedly owed to the bank – had broken down.
"It is an expensive proposition for Puerto Rico to renege on its agreements, and as a result, the government is squandering what little credibility it has left with investors," said Shapiro, former US Undersecretary of Commerce, in a report.
The treasury department was not immediately available for comment on the report.
Doral filed a lawsuit against the Puerto Rican government in June after the treasury allegedly cancelled an agreement to repay US$229mn in overpaid taxes.
Following the failure of negotiations, the two parties will resume their legal battle in a trial set for September 16-18.
"It is a disturbing trend and an unfortunate result because there could have been an amicable resolution to this matter," said Shapiro.
At end-April, regulators ruled that Doral could no longer include the tax receivables in its calculation of Tier 1 capital, forcing the lender to revise its capital plan and causing its share price to plummet 61% in a single day.
In June, the bank was classified as "undercapitalized" by the US Federal Deposit Insurance Corporation (FDIC), and the following month reached an agreement to sell residential and commercial assets worth approximately US$825mn to Abbey Finance Holdings.
Doral also revealed earlier this month that it received a subpoena from the US Securities and Exchange commission (SEC) related to an investigation into its 3Q13 regulatory filings.
Doral says conflict with Puerto Rico govt could impact economy
Friday, August 22, 2014
Rebuilding Puerto Rico's Economy
Like many before him, Juan Posada Hernandez left Puerto Rico in search of a more prosperous life in New York. “I’ve had uncles, grandparents, friends…they all left,” he says. Leaving the island for a better job or education on the U.S. mainland is a tradition that dates back generations. But few who came before the current wave were fleeing an economic situation as desperate as the one that pushed Posada away. “There’s just nothing anymore,” he says of the job market. “Even the restaurant I was working in had to close because they couldn’t pay the [electricity] bill. It’s bleak.”
Unemployment sits above 14% — more than double the mainland rate. Businesses are closing in droves. The electricity authority teeters on the verge of default, which would cause the largest-ever restructuring of state or local debt. And with some 1,000 Puerto Ricans a week leaving for the U.S. mainland, a full third of people born on the island now live elsewhere — the first time that has happened since the 1700s, according to a new Pew Research report. Things are indeed “bleak” for Puerto Rico.
“Since the early 2000s, they’ve been losing ground and haven’t been able to stay competitive,” notes Mauro Guillen, a Wharton management professor. “The governments over the years over-borrowed. One was populist and the others were afraid to make tough decisions. All this is making things difficult for this current administration.”
Governor Alejandro Garcia Padilla was sworn in a year and a half ago and promptly cut government spending and reduced the deficit by more than 60%. “At the end of the day, it’s tough because there’s a lot of competition,” Guillen points out. “Puerto Rico’s biggest problem lies with the public sector. In the good old days, when growth was high, the public sector grew too much. They borrowed money to pay for all of that and that’s why they are in they position they are in.”
Yet, amid all the bad news coming out of the island, the top economic development officer is highly optimistic. Expect “5% [GDP] growth within the next three to five years,” says Alberto Baco, secretary of economic development and commerce told Knowledge@Wharton. The island’s economy hasn’t grown that fast in more than a decade, but Baco says the combination of fiscal discipline and economic incentives will again make Puerto Rico a place to invest. “The negatives are … scenes of the past. All we can present is that we’re doing the right things on the fiscal side and on the economic development side.”
The stakes are enormous. If it succeeds, the government’s plan to turn the economy around would not only reverse migration trends, it would also position the island — which is blessed with numerous economic advantages — as a destination for international businesses, something like the Singapore of the Caribbean. But before the government can restore the economy to the level of production it saw during its heyday, it needs to clear some of the most significant financial hurdles faced anywhere in the United States.
Many trace the underlying economic problems to the Puerto Rico Electric Power Authority (PREPA). Despite charging more than double the average rate per kilowatt hour that mainland suppliers charge, PREPA slid deep into the red in recent years. The prices are so high, in part, because the authority imports oil, rather than cheaper natural gas, to fuel its electricity generating facilities.
But the authority was also structured to fail, according to Elías R. Gutiérrez, an economist and professor of planning at the University of Puerto Rico. “Let’s put it this way: PREPA has been the cause of the serious problems with the economy of Puerto Rico for several years now.”
Gutiérrez notes the authority has failed to invest in new technologies and continues to subsidize the central government even as it accumulated debt. Although it was formed as a public corporation, PREPA did not charge the government or municipalities for the electricity they consumed. Gutiérrez said the subsidy cost PREPA tens of millions a year. “There’s no way anyone, not even a monopoly, which PREPA is, can survive under those conditions.”
As a result, the authority pushed higher costs onto residents and businesses. The average rate of 26 cents per kilowatt hour compares to an average of 10 cents across the mainland U.S., according to the Energy Information Administration. That, in turn, deterred new large-scale investment and forced many small businesses, such as the restaurant where Posada worked, to close.
The subsidy helped push the authority’s debt to roughly $9 billion this year. As the bills mounted, the government passed a law in June that allows PREPA and other public corporations — which owe a combined $19.4 billion — to restructure their debts while avoiding federal bankruptcy. PREPA was able to make good to bondholders in July only by dipping into its reserve fund, which led analysts to predict it is likely to miss the January payment, forcing a restructuring.
A restructuring would be painful for bondholders, many of whom are Puerto Ricans who bought into notes as part of their retirement savings. Mainland U.S. investment funds also hold about $1.6 billion. They have filed a federal lawsuit challenging the restructuring law. A judge expects the island to present its case in September.
PREPA won a reprieve in mid-August when it reached a deal with banks to extend some $671 million in credit lines until March, PREPA said in a statement. That agreement will allow PREPA to continue buying oil and could help it stave off a restructuring, at least temporarily.
Under the agreement, PREPA must appoint a chief restructuring officer by early September and develop a long-term business plan by December. “In the next six months, restructuring [is] the most probable scenario,” says Vincente Feliciano, an economist and president of San Juan-based Advantage Business Consulting. “In my opinion, sooner rather than later would be better. As soon as possible is preferable.”
Feliciano says a default might be the best thing for the Puerto Rican economy as it would clear much of the uncertainty holding back investment. “We’re in uncharted waters. This law is new and now PREPA needs approval to raise rates,” due to the creation of a new government agency that oversees rate increases, he notes. “A rate increase is unlikely, so they are likely to default at some point. If it comes sooner, it will clear the air…. The energy situation is important to the pharmaceutical and manufacturing industries.”
Last month, while speculation about PREPA’s future swirled and as the New York Federal Reserve Bank released a report warning of the need for Puerto Rico to enact drastic economic reforms, Baco, the economic development officer, was nailing down the details of a handful of major investments from international corporations planning to move their regional headquarters to Puerto Rico.
He says that at least three major companies will soon announce they are relocating regional headquarters to the islands. For Baco, those announcements will be only the latest signs of life, or “senales de vida,” that the Puerto Rican economy is on the verge of making a comeback. He adds that the backbone of the island’s economy — manufacturing, pharmaceuticals and tourism — remains strong.
The manufacturing sector, once hemorrhaging jobs, has stabilized during the last 18 months, and continues to employ some 75,000 people. Baco points to the announced $9 million expansion of UTC Aerospace Systems’ Santa Isabel manufacturing plant, where 1,300 workers produce parts for the aerospace and defense industries.
Meanwhile, the number of cruise ship passengers visiting the island increased roughly 15% in the past year. And hotels are booked — the average daily room rate in Puerto Rico reached a record of $256.29 in February. Revenue per available room, which the hotel industry uses as a measure of the strength of a market, sat at an all-time high average of $99.82 last year, according to a report by the The Wall Street Journal. That’s good news for a key sector that, while down from its peak in 2008, still makes up roughly 5% of the economy.
But beyond those industries, Baco says the government is trying to push the island’s economy forward by attracting new sectors, including the information technology and services industries.
In April, the government lured Germany-based Lufthansa Technik to build a major aviation maintenance and repair facility adjacent to the Rafael Hernandez International Airport outside San Juan. The facility, which will begin servicing aircraft for at least two major airlines, including Caribbean leader JetBlue, will create as many as 600 direct jobs and support an estimated 2,000 indirect jobs, Baco notes.
“That’s a new line for Puerto Rico, a major sector that didn’t exist,” he adds. “We are globalizing our vision and we’re beginning to see international companies choosing Puerto Rico.” Baco says the government wants to promote the island’s natural advantages — the fact that it is a U.S. territory, has a bilingual workforce, and its geography and climate — to attract domestic companies that want a gateway to Latin America or Latin American companies that want an entry to the U.S.
To support new industries, the government has passed a range of financial incentives and is taking aggressive steps to improve its infrastructure. It recently launched a $17 million pilot project to bring ultra high-speed Internet to an economically important area near San Juan. The project, which threads fiber optic cable though the existing aqueducts and water pipes, will deliver network speeds of roughly one-gigabyte-per-second, 100 times faster than a typical broadband connection.
Puerto Rico already has several large tech companies, including HP and Microsoft. Gonzalez says upgrading network speeds will have economic benefits. Currently only 12% of businesses have a high-speed fiber optic connection. A 2012 study by the Inter-American Development Bank said that every 10% increase in broadband penetration in Latin America and the Caribbean “is associated with 3.19% higher GDP and 2.61% higher productivity.”
“The idea was: How do we turn Puerto Rico into tech powerhouse with a lot of capacity? The anchor plan is the aqueduct project,” Gonzalez notes.
Although it’s a long way off, the vision of the island as a highly connected destination for international business is the message that the government is pushing. “Our short version of how we describe this new economy is that we’re more competitive than Miami and we are closer to a Singapore,” Baco notes.
Overly Optimistic?
Although the government is bullish, it remains to be seen how major hurdles, such as PREPA’s restructuring, will affect the economic plan. Ratings agencies have already downgraded general obligation bonds. Residents continue to flee in droves. And much uncertainty remains among investors.
Wharton’s Guillen says the best thing that could happen to the Puerto Rican economy is a strong rebound of the U.S. economy. “The fact that the U.S. economy grew by 4% in the second quarter was good news for Puerto Rico,” he notes. “The most important factor for Puerto Rico, the most important customer base, is in the United States.”
But others are less optimistic. “We’ve had seven years of stagnation and the measures taken during the past year and a half have only provided artificial life to the Jabba the Hutt-like government that we have here,” Gutiérrez says. “What we’ve seen is not only a migration of the labor force, but the middle class has disappeared also. Savings have been decimated. We have lost a tremendous amount of wealth. And I don’t see much improvement in our future.”
Unemployment sits above 14% — more than double the mainland rate. Businesses are closing in droves. The electricity authority teeters on the verge of default, which would cause the largest-ever restructuring of state or local debt. And with some 1,000 Puerto Ricans a week leaving for the U.S. mainland, a full third of people born on the island now live elsewhere — the first time that has happened since the 1700s, according to a new Pew Research report. Things are indeed “bleak” for Puerto Rico.
“Since the early 2000s, they’ve been losing ground and haven’t been able to stay competitive,” notes Mauro Guillen, a Wharton management professor. “The governments over the years over-borrowed. One was populist and the others were afraid to make tough decisions. All this is making things difficult for this current administration.”
Governor Alejandro Garcia Padilla was sworn in a year and a half ago and promptly cut government spending and reduced the deficit by more than 60%. “At the end of the day, it’s tough because there’s a lot of competition,” Guillen points out. “Puerto Rico’s biggest problem lies with the public sector. In the good old days, when growth was high, the public sector grew too much. They borrowed money to pay for all of that and that’s why they are in they position they are in.”
Yet, amid all the bad news coming out of the island, the top economic development officer is highly optimistic. Expect “5% [GDP] growth within the next three to five years,” says Alberto Baco, secretary of economic development and commerce told Knowledge@Wharton. The island’s economy hasn’t grown that fast in more than a decade, but Baco says the combination of fiscal discipline and economic incentives will again make Puerto Rico a place to invest. “The negatives are … scenes of the past. All we can present is that we’re doing the right things on the fiscal side and on the economic development side.”
The stakes are enormous. If it succeeds, the government’s plan to turn the economy around would not only reverse migration trends, it would also position the island — which is blessed with numerous economic advantages — as a destination for international businesses, something like the Singapore of the Caribbean. But before the government can restore the economy to the level of production it saw during its heyday, it needs to clear some of the most significant financial hurdles faced anywhere in the United States.
“It’s tough because there’s a lot of competition. Puerto Rico’s biggest problem lies with the public sector.” — Mauro GuillenLights Out?
Many trace the underlying economic problems to the Puerto Rico Electric Power Authority (PREPA). Despite charging more than double the average rate per kilowatt hour that mainland suppliers charge, PREPA slid deep into the red in recent years. The prices are so high, in part, because the authority imports oil, rather than cheaper natural gas, to fuel its electricity generating facilities.
But the authority was also structured to fail, according to Elías R. Gutiérrez, an economist and professor of planning at the University of Puerto Rico. “Let’s put it this way: PREPA has been the cause of the serious problems with the economy of Puerto Rico for several years now.”
Gutiérrez notes the authority has failed to invest in new technologies and continues to subsidize the central government even as it accumulated debt. Although it was formed as a public corporation, PREPA did not charge the government or municipalities for the electricity they consumed. Gutiérrez said the subsidy cost PREPA tens of millions a year. “There’s no way anyone, not even a monopoly, which PREPA is, can survive under those conditions.”
As a result, the authority pushed higher costs onto residents and businesses. The average rate of 26 cents per kilowatt hour compares to an average of 10 cents across the mainland U.S., according to the Energy Information Administration. That, in turn, deterred new large-scale investment and forced many small businesses, such as the restaurant where Posada worked, to close.
A restructuring would be painful for bondholders, many of whom are Puerto Ricans who bought into notes as part of their retirement savings. Mainland U.S. investment funds also hold about $1.6 billion. They have filed a federal lawsuit challenging the restructuring law. A judge expects the island to present its case in September.
PREPA won a reprieve in mid-August when it reached a deal with banks to extend some $671 million in credit lines until March, PREPA said in a statement. That agreement will allow PREPA to continue buying oil and could help it stave off a restructuring, at least temporarily.
Under the agreement, PREPA must appoint a chief restructuring officer by early September and develop a long-term business plan by December. “In the next six months, restructuring [is] the most probable scenario,” says Vincente Feliciano, an economist and president of San Juan-based Advantage Business Consulting. “In my opinion, sooner rather than later would be better. As soon as possible is preferable.”
Feliciano says a default might be the best thing for the Puerto Rican economy as it would clear much of the uncertainty holding back investment. “We’re in uncharted waters. This law is new and now PREPA needs approval to raise rates,” due to the creation of a new government agency that oversees rate increases, he notes. “A rate increase is unlikely, so they are likely to default at some point. If it comes sooner, it will clear the air…. The energy situation is important to the pharmaceutical and manufacturing industries.”
“In the next six months, restructuring [is] the most probable scenario. In my opinion, sooner rather than later would be better. As soon as possible is preferable.” – Vincente FelicianoSenales De Vida
Last month, while speculation about PREPA’s future swirled and as the New York Federal Reserve Bank released a report warning of the need for Puerto Rico to enact drastic economic reforms, Baco, the economic development officer, was nailing down the details of a handful of major investments from international corporations planning to move their regional headquarters to Puerto Rico.
He says that at least three major companies will soon announce they are relocating regional headquarters to the islands. For Baco, those announcements will be only the latest signs of life, or “senales de vida,” that the Puerto Rican economy is on the verge of making a comeback. He adds that the backbone of the island’s economy — manufacturing, pharmaceuticals and tourism — remains strong.
The manufacturing sector, once hemorrhaging jobs, has stabilized during the last 18 months, and continues to employ some 75,000 people. Baco points to the announced $9 million expansion of UTC Aerospace Systems’ Santa Isabel manufacturing plant, where 1,300 workers produce parts for the aerospace and defense industries.
Meanwhile, the number of cruise ship passengers visiting the island increased roughly 15% in the past year. And hotels are booked — the average daily room rate in Puerto Rico reached a record of $256.29 in February. Revenue per available room, which the hotel industry uses as a measure of the strength of a market, sat at an all-time high average of $99.82 last year, according to a report by the The Wall Street Journal. That’s good news for a key sector that, while down from its peak in 2008, still makes up roughly 5% of the economy.
But beyond those industries, Baco says the government is trying to push the island’s economy forward by attracting new sectors, including the information technology and services industries.
In April, the government lured Germany-based Lufthansa Technik to build a major aviation maintenance and repair facility adjacent to the Rafael Hernandez International Airport outside San Juan. The facility, which will begin servicing aircraft for at least two major airlines, including Caribbean leader JetBlue, will create as many as 600 direct jobs and support an estimated 2,000 indirect jobs, Baco notes.
“That’s a new line for Puerto Rico, a major sector that didn’t exist,” he adds. “We are globalizing our vision and we’re beginning to see international companies choosing Puerto Rico.” Baco says the government wants to promote the island’s natural advantages — the fact that it is a U.S. territory, has a bilingual workforce, and its geography and climate — to attract domestic companies that want a gateway to Latin America or Latin American companies that want an entry to the U.S.
To support new industries, the government has passed a range of financial incentives and is taking aggressive steps to improve its infrastructure. It recently launched a $17 million pilot project to bring ultra high-speed Internet to an economically important area near San Juan. The project, which threads fiber optic cable though the existing aqueducts and water pipes, will deliver network speeds of roughly one-gigabyte-per-second, 100 times faster than a typical broadband connection.
Before the government can restore the economy to the level of production it saw during its heyday, it needs to clear some of the most significant financial hurdles faced anywhere in the United States.Giancarlo Gonzalez, the government’s chief information officer, says if the project is successful it could be replicated in other population centers across the island. “There’s a major opportunity here for the telecom sector.”
Puerto Rico already has several large tech companies, including HP and Microsoft. Gonzalez says upgrading network speeds will have economic benefits. Currently only 12% of businesses have a high-speed fiber optic connection. A 2012 study by the Inter-American Development Bank said that every 10% increase in broadband penetration in Latin America and the Caribbean “is associated with 3.19% higher GDP and 2.61% higher productivity.”
“The idea was: How do we turn Puerto Rico into tech powerhouse with a lot of capacity? The anchor plan is the aqueduct project,” Gonzalez notes.
Although it’s a long way off, the vision of the island as a highly connected destination for international business is the message that the government is pushing. “Our short version of how we describe this new economy is that we’re more competitive than Miami and we are closer to a Singapore,” Baco notes.
Overly Optimistic?
Although the government is bullish, it remains to be seen how major hurdles, such as PREPA’s restructuring, will affect the economic plan. Ratings agencies have already downgraded general obligation bonds. Residents continue to flee in droves. And much uncertainty remains among investors.
Wharton’s Guillen says the best thing that could happen to the Puerto Rican economy is a strong rebound of the U.S. economy. “The fact that the U.S. economy grew by 4% in the second quarter was good news for Puerto Rico,” he notes. “The most important factor for Puerto Rico, the most important customer base, is in the United States.”
But others are less optimistic. “We’ve had seven years of stagnation and the measures taken during the past year and a half have only provided artificial life to the Jabba the Hutt-like government that we have here,” Gutiérrez says. “What we’ve seen is not only a migration of the labor force, but the middle class has disappeared also. Savings have been decimated. We have lost a tremendous amount of wealth. And I don’t see much improvement in our future.”
Wednesday, August 20, 2014
Fitch: PREPA Restructuring Still Probable Despite Forbearance Agreements
Fitch Ratings believes that a restructuring of Puerto Rico Electric Power Authority's (PREPA) debt obligations remains likely. The forbearance agreements between PREPA and certain of its creditors (including bondholders) signed on Aug. 14 provide only temporary relief related to PREPA's maturing bank lines of credit. The underlying terms provide minimal comfort that long-term financial compliance is sustainable. They also do little to address Fitch's longer-term rating concerns that PREPA's net cash receipts and existing funds on hand remain insufficient to meet ongoing working capital, debt service and other funding requirements.
Terms of Forbearance Agreement Point to Restructuring
The forbearance agreements fundamentally provide the collective consent of PREPA's principal creditors not to exercise any rights or remedies arising by reason of potential default under their respective agreements through March 31, 2015, and allow time for additional negotiations. Consistent with the broader agreement, the maturity date on PREPA's existing $696 million of bank loans has been extended to March 31, 2015 (from Aug. 14, 2014). The principal lending banks - including Citibank N.A. and Scotiabank de Puerto Rico - are to receive only interest payments on outstanding loans during the forbearance period, while bondholders are to be paid scheduled debt service, including payments due Jan. 1, 2015. Pursuant to the forbearance agreement with GDB, PREPA shall have no obligation to pay any principal or interest due under smaller borrowing agreements with the GDB during the forbearance period.
Certain provisions of the agreements appear designed to enhance PREPA's ability to meet near-term operating expenses and provide greater lender oversight of operations. These include requirements for detailed cash flow reporting and forecasting, relief from sinking fund requirements, relief from the aforementioned GDB payment obligations, and permitted access to construction funds for the payment of operating expenses. However, other provisions including the required submission of a restructuring plan by March 2, 2015, retention of a chief restructuring officer and the contemplated use of reserve funds for debt service payments suggest, in Fitch's view, that a financial restructuring remains probable.
Financial Performance Remains Weak
PREPA remains plagued by weak financial performance in recent years, including through fiscal 2014. For the 12 months ended June 30, 2014 PREPA reported earnings before interest and depreciation of $781 million and a net loss of ($267 million). The net loss was well above PREPA's budgeted loss of ($161 million). Poor performance for the fiscal year was further characterized by declining energy sales (3.6% in fiscal 2014), declining customers (1.5%), high concentrations of accounts receivable (25% of revenue), high fuel costs (14.99 cents/kWh) and an unwillingness to increase base electric rates.
Power Revenue Bonds Rated 'CC'
Fitch downgraded the rating on PREPA's net revenue bonds to 'CC' from 'BB' on June 26, 2014 to reflect its view of a probable restructuring following introduction of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the Act). The rating is on Negative Watch. Any restructuring that does not result in full and timely payment of the power revenue bonds according to the original terms promised, would likely result in a further downgrade to 'C' upon agreement and 'D' upon execution.
Additional information is available at 'www.fitchratings.com'.
Contact: Fitch: PREPA Restructuring Still Probable Despite Forbearance Agreements
Terms of Forbearance Agreement Point to Restructuring
The forbearance agreements fundamentally provide the collective consent of PREPA's principal creditors not to exercise any rights or remedies arising by reason of potential default under their respective agreements through March 31, 2015, and allow time for additional negotiations. Consistent with the broader agreement, the maturity date on PREPA's existing $696 million of bank loans has been extended to March 31, 2015 (from Aug. 14, 2014). The principal lending banks - including Citibank N.A. and Scotiabank de Puerto Rico - are to receive only interest payments on outstanding loans during the forbearance period, while bondholders are to be paid scheduled debt service, including payments due Jan. 1, 2015. Pursuant to the forbearance agreement with GDB, PREPA shall have no obligation to pay any principal or interest due under smaller borrowing agreements with the GDB during the forbearance period.
Certain provisions of the agreements appear designed to enhance PREPA's ability to meet near-term operating expenses and provide greater lender oversight of operations. These include requirements for detailed cash flow reporting and forecasting, relief from sinking fund requirements, relief from the aforementioned GDB payment obligations, and permitted access to construction funds for the payment of operating expenses. However, other provisions including the required submission of a restructuring plan by March 2, 2015, retention of a chief restructuring officer and the contemplated use of reserve funds for debt service payments suggest, in Fitch's view, that a financial restructuring remains probable.
Financial Performance Remains Weak
PREPA remains plagued by weak financial performance in recent years, including through fiscal 2014. For the 12 months ended June 30, 2014 PREPA reported earnings before interest and depreciation of $781 million and a net loss of ($267 million). The net loss was well above PREPA's budgeted loss of ($161 million). Poor performance for the fiscal year was further characterized by declining energy sales (3.6% in fiscal 2014), declining customers (1.5%), high concentrations of accounts receivable (25% of revenue), high fuel costs (14.99 cents/kWh) and an unwillingness to increase base electric rates.
Power Revenue Bonds Rated 'CC'
Fitch downgraded the rating on PREPA's net revenue bonds to 'CC' from 'BB' on June 26, 2014 to reflect its view of a probable restructuring following introduction of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the Act). The rating is on Negative Watch. Any restructuring that does not result in full and timely payment of the power revenue bonds according to the original terms promised, would likely result in a further downgrade to 'C' upon agreement and 'D' upon execution.
Additional information is available at 'www.fitchratings.com'.
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Puerto Rico's PREPA CRO duties to include financial restructuring
Aug 19 (Reuters) - The new role of chief restructuring officer at Puerto Rico's electric power authority PREPA will include both financial and operational restructuring, according to a document posted on the website of Puerto Rico's Government Development Bank on Tuesday.
"The CRO shall work alongside PREPA's chief executive officer (Executive Director) to develop, organize and manage a financial and operational restructuring of PREPA on terms to be approved by the board," the document said.
PREPA must agree on a restructuring officer with bondholders by Sept. 8, according to the forbearance agreement it signed with creditors on Thursday. The agreement allowed PREPA to extend $671 million in outstanding credit lines that it uses to make crucial oil purchases.
The explicit inclusion of financial restructuring in the remit is seen as the clearest indication yet from local officials that the troubled utility may eventually default on part of its $8.3 billion in outstanding bonds.
PREPA had said in a separate statement on Monday that it will have final say on who it appoints to the CRO role.
Puerto Rico officials have generally steered clear of openly talking about restructuring PREPA's debt and the forbearance agreement did not explicitly refer to a financial restructuring.
The agreement stated that FTI Consulting would produce a report looking at operation matters such as electricity rates, money owed to PREPA, and certain payments PREPA makes to municipalities. Those operational issues were cited in a amended lawsuit fund managers Oppenheimer and Franklin Templeton brought against Puerto Rico in June.
Other duties of the CRO include providing expert testimony if PREPA files for protection under a new and contested law, known as the Recovery Act, that allows PREPA and some other public corporations to enter a process similar to bankruptcy.
For now, PREPA and bondholders seem ready to try to work out PREPA's difficulties outside court. But the reference to the Recovery Act among the CRO duties indicates that is a path Puerto Rico will take if negotiations collapse. (Reporting by Edward Krudy; editing by Chizu Nomiyama, G Crosse)
UPDATE 1-Puerto Rico's PREPA CRO duties to include financial restructuringTuesday, August 19, 2014
Puerto Rico Buoys Hedge Funds After Agency Reprieve: Muni Credit
Puerto Rico bonds are extending the longest rally since May after the island’s cash-strapped electric agency won a reprieve from restructuring assets. Hedge funds, with a growing stake in the securities, stand to gain.
Puerto Rico obligations have surged about 7 percent in their six-week advance, S&P Dow Jones Indices show. The gain is quadruple that of the broad municipal market, where benchmark 10-year yields are the lowest since May 2013.
The rally is a boon for the more than 60 alternative fund managers that Fitch Ratings says hold a combined $16 billion of Puerto Rico debt. Prices may keep rising after the utility, known as Prepa, said Aug. 14 that it delayed bank loan payments until March and agreed to name a chief restructuring officer next month. The deal probably pushes off a restructuring to next year, Moody’s Investors Service said on Aug. 15.
“It’s a longer extension than expected, and it takes the Puerto Rico contagion risk off the table for this year,” said John Miller, co-head of fixed income in Chicago at Nuveen Asset Management, which oversees $92 billion of munis.
Speculator Getaway
The self-governing commonwealth and its agencies, which have operated for years on borrowed money, have $73 billion of bonds. Most of the debt is tax-exempt nationwide. The Caribbean island in the past year has drawn more alternative asset managers and distressed buyers speculating on price swings, rather than typical muni investors seeking tax-free income.
A group led by New York-based Brigade Capital Management, Fir Tree Partners, Monarch Alternative Capital LP and Perry Capital LLC has offered Puerto Rico financing. The coalition said it added eight firms last week, bringing capital among its 27 members to more than $300 billion.
“It’s a sign of the times in terms of scant distressed opportunities out there,” said David Tawil, president of hedge fund Maglan Capital LP in New York. The $75 million hedge fund owns Puerto Rico general obligations, he said.
The group “is a who’s who of the distressed world,” he said. “The fact that they have the wherewithal to carry the commonwealth if they need to is a good thing.”
Yield Appeal
U.S. mutual funds own about half of the island’s bonds, Fitch said. OppenheimerFunds Inc. and Franklin Resources Inc. together hold about $23 billion, or 35 percent.
Distressed buyers, hedge funds and some muni mutual funds have been lured by the yields on the territory’s junk-rated debt. Its $3.5 billion general-obligation deal in March priced to yield 8.73 percent tax-free, or 14.5 percent on a taxable basis for top earners. At that time, 30-year Treasuries yielded3.7 percent. Hedge funds bought the bulk of the deal.
The March issue traded today at an average yield of 9.13 percent, the lowest since Aug. 5, data compiled by Bloomberg show.
Puerto Rico bonds are rebounding from a plunge starting in June after Governor Alejandro Garcia Padilla signed legislation that would let certain public corporations restructure debt. Prepa, the island’s main supplier of electricity, was seen by investors as a likely candidate to use the new law.
Uninsured Prepa bonds maturing in July 2040 traded Aug. 15 at 53 cents on the dollar, the highest since June 26 and up from 33.2 cents on July 10, Bloomberg data show. The higher price equals a 10.6 percent tax-free yield.
Loss Potential
“People looking for yield right now are saying it’s a roll of the dice, but at these kinds of yields and dollar prices, it’s a calculated risk,” said Dan Toboja, senior vice president of muni trading at Ziegler, aChicago broker-dealer.
Puerto Rico debt may face renewed losses if Prepa announces that it intends to restructure its $8.6 billion of debt, a likely development, Maglan’s Tawil said.
Prepa’s agreement puts off paying $146 million to Citigroup Inc. unit Citibank and $525 million to a syndicate of banks led by Scotiabank de Puerto Rico until March 31. It must appoint a chief restructuring officer by Sept. 8, come up with a five-year business plan by Dec. 15 and deliver a debt restructuring plan by March 2, according to the utility.
“It buys additional time to go ahead and try to get some consensus around what a filing would look like, what a restructuring would look like,” Tawil said.
The investor group’s $4.5 billion of Puerto Rico holdings consist mostly of general obligations, sales-tax debt and securities issued by the Government Development Bank and Public Buildings Authority.
Those bonds stand to benefit should public corporations such as Prepa restructure debt because the move would buffer the commonwealth from its agencies, said Gary Pzegeo, head of fixed income inBoston at Atlantic Trust Private Wealth Management, which oversees about $4 billion of munis.
Relying on hedge funds and other non-traditional muni buyers comes with risk, Toboja said. While those buyers are interested in the commonwealth’s fiscal standing and pledge to provide financing, their views may shift, he said.
“If this stretches out into several years, maybe their priorities change,” Toboja said. “Maybe they put their capital into other areas.”
To contact the reporter on this story: Brian Chappatta in New York atbchappatta1@bloomberg.net
To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.netMark Tannenbaum
Puerto Rico Buoys Hedge Funds After Agency Reprieve: Muni Credit
Saturday, August 16, 2014
Puerto Rico's power authority bonds jump after creditor agreement
NEW YORK, Aug 15 (Reuters) - Bonds of Puerto Rico's PREPA power authority hit their highest price in nearly two months on Friday, a day after the troubled utility reached a deal with creditors to extend credit lines and develop a plan to restructure its business.
Although PREPA is still losing money and is struggling with more than $9 billion of debt, Thursday's agreement ensures the utility cash until next March to make oil purchases. PREPA also agreed to make its $209 million coupon payment to bondholders in January, avoiding the prospect of an imminent default.
"Part of me says this is kicking the can down the road. Why would the bid improve except that they're going to receive another coupon payment?" said Robert Amodeo, a fund manager at Western Asset. Amodeo does not hold PREPA bonds but does own Puerto Rico general obligation and tax revenue bonds.
PREPA bonds due in 2035 with a 5.25 percent coupon traded up 6 cents at an average price of 53 cents on the dollar and yield of 11.063 percent. The bonds traded at their highest level since June 18.
The bonds have rallied from an average low of 34.500 cents hit on July 7, about a week after Puerto Rico passed the Recovery Act, which allows some public corporations to restructure their debt. Still, the bonds remain at heavily discounted levels, indicating the market expects a writedown at some point.
The core of PREPA's problems is that it uses high-cost oil to generate electricity. PREPA spends almost two-thirds of its operating budget, or $2.6 billion, on oil. Electricity prices on the island are double those in the mainland United States.
"This is a positive step but at the same time I don't think this changes the underlying problem, which is the utility runs at a loss and has to buy oil to produce energy at a loss. That has to change," said Amodeo.
(Reporting by Edward Krudy; Editing by Dan Grebler)
Puerto Rico's power authority bonds jump after creditor agreement
Friday, August 15, 2014
Puerto Rico Electric Authority Wins Bank Loan Extension to March
The Puerto Rico Electric Power Authority, the main supplier of electricity in the struggling U.S. territory, said it agreed with creditors to delay repayment of bank loans until March.
The agency, known as Prepa, uses the lines of credit to buy fuel. It was scheduled yesterday to repay $146 million to Citigroup Inc. unit Citibank and $525 million to a syndicate of banks led by Scotiabank de Puerto Rico, which is serving as administrative agent. Prepa, which has $8.6 billion of debt, had already pushed back payments last month after using $41.6 million of reserves to pay investors July 1.
Under the agreement, Prepa must appoint a chief restructuring officer by Sept. 8 and come up with a five-year business plan by Dec. 15, according to a statement the utility released yesterday. Prepa must also deliver a debt restructuring plan by March 2.
The announcement “is an important milestone in the transformation of Prepa and gives us a clear line of sight to the future,” Harry Rodriguez, president of Prepa’s board of directors, said in the statement.
The utility, which used $100 million from its capital fund in May to buy fuel, said it will make full debt-service payments during the term of the agreements. The agency must repay about $214 million to bondholders on Jan. 1, according to New York-based advisory firm NewOak.
Restructuring Bets
Investors in the $3.7 trillion municipal-bond market have been speculating that Prepa would be the first Puerto Rico public corporation to use the island’s new debt-restructuring law to reduce obligations.
Prepa would represent the largest restructuring ever in the state and local-debt market, exceeding the $8 billion of general obligations and water-and-sewer debt in Detroit’s record bankruptcy last year. Unlike Motor City investors, most holders of Prepa debt don’t have bond insurance.
Puerto Rico and its agencies have about $73 billion of debt. Most of the securities are tax-free nationwide, leading 66 percent of U.S. muni mutual funds to hold them, according to Morningstar Inc.
Bond funds affiliated with Franklin Resources Inc. and Oppenheimer Rochester Funds filed a lawsuit saying the Puerto Rico Public Corporation Debt Enforcement and Recovery Act, approved by lawmakers in June, is unconstitutional. In papers filed this week in San Juan, they urged U.S. District Judge Francisco A. Besosa to rule immediately rather than wait to see how or whether the statute is applied.
Bonds Gain
Some of the longest-maturing Prepa bonds have rallied since reaching as low as 34 cents on the dollar July 2.
Uninsured Prepa securities due in July 2042 traded Aug. 13 at about 50 cents on the dollar, the highest since June 26, data compiled by Bloomberg show. That was the day Fitch Ratingsdowngraded the authority to CC, its third-lowest speculative grade, citing a probable restructuring or default.
An amendment to bond documents will let Prepa use about $280 million in its construction fund to pay for expenses and capital improvements, according to the statement. That will facilitate cleaner and more efficient fuel delivery.
Robert Julavits, a spokesman for New York-based Citigroup, declined to comment. Paula Cufre, a spokeswoman at Toronto-based Bank of Nova Scotia, referred questions to Prepa.
To contact the editors responsible for this story: Stephen Merelman atsmerelman@bloomberg.net Mark Tannenbaum, Alan Goldstein
Puerto Rico Electric Authority Wins Bank Loan Extension to March
Thursday, August 14, 2014
Prepa gets lifelines from banks and bondholders in exchange for reforms
Creditors are allowing Prepa to again postpone payment of $671 million worth of loans until next year. The utility owes Scotiabank $525 million and Citigroup $146 million and had faced a previously extended payment deadline Thursday.
The banks that provide revolving lines of credit for fuel purchases and other operational costs will extend until March 31, 2015 agreements to not exercise remedies as a result of credit downgrades. Prepa will continue to delay certain payments that were due to these lenders in July and August but will continue to make all scheduled payments of cash interest.
Investors holding and insuring more than 60 percent of its outstanding debt have agreed to amend bond documents to provide the utility with liquidity and time to “develop a plan to achieve a restructuring of its business.”
The insurers and bondholders will not exercise remedies against Prepa during the term of these agreements, and the utility will continue to make required debt service payments in full. It is reportedly facing repayment of $214 million to bondholders on January 1.
Under the terms of the agreement, Prepa will have to appoint a chief restructuring offer by September 8 and complete a full debt restructuring plan by March 2, 2015.
The chief restructuring officer will work with the utility’s executive director and its board to “speed up the transformation of the public corporation,” Prepa said in a statement
Prepa said it is committed to drafting a five-year business plan by mid-December.
“Today’s agreements give Prepa the additional time and financial resources we need to reach a comprehensive solution that ensures our ability to provide a safe, reliable and efficient power supply to all Puerto Ricans for many years to come,” Prepa Executive Director Juan F. Alicea Flores said in a statement.
The utility, which tapped its capital fund for $100 million in May to buy fuel, said it will make full debt-service payments during the term of the agreements.
“Today’s announcement is an important milestone in the transformation of Prepa and gives us a clear line of sight to the future,” said Harry Rodríguez, who chairs Prepa’s board of directors.
The announcement comes amid growing speculation that Prepa might default on its $9.3 billion debt.
Investors and analysts have worried that the maturing bank lines could push the troubled government electric utility into default and subsequent debt restructuring. Standard & Poor’s has said Prepa lacks the cash to repay the loans.
Prepa is widely expected to be the first public corporation to file under the recently enacted Puerto Rico Public Corporation Debt Compliance & Recovery Act (Recovery Act). Even government officials have said that the law, hurriedly approved in late June, was tailored for Prepa over concerns that it might be forced into default this summer if negotiations with its bankers failed.
While government officials continue to hold out hope that Prepa and other public corporations can avoid default, investors and analysts are increasingly convinced that both Prepa and the Highways & Transportation Authority will have to go through restructuring.
Prepa has combined operating losses of $1.022 billion during the past four years, with the public corporation losing $275 million in fiscal year 2013 and $346 million in fiscal 2012. It falls below utility-industry performance benchmarks in a wide range of areas and fails to employ standard industry practices aimed at holding down costs and assuring operational efficiency, according to a November 2012 report by consultants Álvarez & Marsal commissioned by the GDB.
The report found Prepa was worth about half its outstanding long-term debt. Its preliminary value range for Prepa was $3.5 billion to $4.1 billion at a time when its net debt was $6.9 billion. Today, its debt is $9.28 billion.
Mutual funds mounting a legal challenge against the Recovery Act are aiming to amend their lawsuit to include arguments that Prepa could meet its obligations without defaulting on its debts to bondholders.
The timeframe of federal court proceedings in the legal challenge of Puerto Rico’s new Recovery Act is taking shape as a federal judge in Puerto Rico ordered both sides the make their cases by October.
The Recovery Act allows ailing public corporations to restructure their debts through a bankruptcy like process in local courts. The law provides two avenues for the public corporations to restructure their debt. A Chapter 2 filing would allow public corporations to create plans that postpones or reduces debt service payments with the consent of a majority of creditors. A Chapter 3 filing would allow public corporations go through the local courts if voluntary repayment plans cannot be reached with a majority of creditors.
The plaintiffs filed their lawsuit against the Recovery Act in the U.S. District Court in San Juan in June arguing that the Puerto Rico law is unconstitutional and that only Congress has the power to pass bankruptcy legislation. Franklin Funds holds $907.1 million in Prepa bonds and Oppenheimer Rochester Funds holds $821.4 million in Prepa bonds. They lodged an amended suit this week to include arguments that government power utility could meet its obligations without defaulting on its debts to bondholders.
The plaintiffs say Prepa has other avenues to shore up its finances including: raising rates; the Puerto Rico government could repay over $640,000,000 it owes to the utility; the commonwealth could reduce Prepa’s taxes and subsidies which the brief asserts amount to over $1 billion from 2014 through 2018; Prepa should collect its full accounts receivable and pay subsidies after debt service instead of permitting customers to offset subsidies from their payments; Prepa should cut costs and address inefficiencies; and should strengthen its capital markets reputation by hiring an investment banker and making public presentations.
“The ease with which the numerous alternative solutions could be implemented underscores that the Recovery Act is not reasonable or necessary to serve any public purpose,” the funds said.
The second amended complaint reiterates that a Prepa filing under the Recovery Act is both “probable and imminent.” The summary judgment motion seeks summary judgment on two of the plaintiffs’ claims: that the Recovery Act is constitutionally and statutorily preempted, and that the Recovery Act’s automatic stay provisions are illegal to the extent they purport to preclude a federal court action. The motion asserts that these two claims are “purely legal, and will not be clarified by further factual development.”
Prepa recently acknowledged it was in talks with 60 percent of investors holding and ensuring 60 percent of the bonds in circulation, as well as with banks providing a credit facility to buy oil to produce electric power.
A $20 billion New York-based hedge fund, Blue Mountain Capital Management, filed a second lawsuit in late July, calling Puerto Rico’s restructuring law an attempt to “erect an unconstitutional bankruptcy regime” to subvert the contractual rights of investors.
The commonwealth government and Prepa are seeking to have the lawsuits dismissed. They argue that because Prepa has not filed under the Recovery Act there is no case or controversy to adjudicate.
In defending the constitutionality of the Recovery Act, the government lawyers are highlighting the fiscal crisis affecting Puerto Rico and the right of the commonwealth government to use its “police powers” during what they describe as an “emergency situation.”
They also emphasized that the Recovery Act provides similar treatment to creditors and establishes similar procedures to federal bankruptcy law in arguing that this is a legitimate move by Puerto Rico to resolve its fiscal situation, just as other jurisdictions stateside like Detroit have undertaken.
The Puerto Rico Electric Power Authority has struck deals with bondholders and creditors that will give it liquidity but require a restructuring of the ailing public utility.
Prepa gets lifelines from banks and bondholders in exchange for reforms
The banks that provide revolving lines of credit for fuel purchases and other operational costs will extend until March 31, 2015 agreements to not exercise remedies as a result of credit downgrades. Prepa will continue to delay certain payments that were due to these lenders in July and August but will continue to make all scheduled payments of cash interest.
Investors holding and insuring more than 60 percent of its outstanding debt have agreed to amend bond documents to provide the utility with liquidity and time to “develop a plan to achieve a restructuring of its business.”
The insurers and bondholders will not exercise remedies against Prepa during the term of these agreements, and the utility will continue to make required debt service payments in full. It is reportedly facing repayment of $214 million to bondholders on January 1.
Under the terms of the agreement, Prepa will have to appoint a chief restructuring offer by September 8 and complete a full debt restructuring plan by March 2, 2015.
The chief restructuring officer will work with the utility’s executive director and its board to “speed up the transformation of the public corporation,” Prepa said in a statement
Prepa said it is committed to drafting a five-year business plan by mid-December.
“Today’s agreements give Prepa the additional time and financial resources we need to reach a comprehensive solution that ensures our ability to provide a safe, reliable and efficient power supply to all Puerto Ricans for many years to come,” Prepa Executive Director Juan F. Alicea Flores said in a statement.
The utility, which tapped its capital fund for $100 million in May to buy fuel, said it will make full debt-service payments during the term of the agreements.
“Today’s announcement is an important milestone in the transformation of Prepa and gives us a clear line of sight to the future,” said Harry Rodríguez, who chairs Prepa’s board of directors.
The announcement comes amid growing speculation that Prepa might default on its $9.3 billion debt.
Investors and analysts have worried that the maturing bank lines could push the troubled government electric utility into default and subsequent debt restructuring. Standard & Poor’s has said Prepa lacks the cash to repay the loans.
Prepa is widely expected to be the first public corporation to file under the recently enacted Puerto Rico Public Corporation Debt Compliance & Recovery Act (Recovery Act). Even government officials have said that the law, hurriedly approved in late June, was tailored for Prepa over concerns that it might be forced into default this summer if negotiations with its bankers failed.
While government officials continue to hold out hope that Prepa and other public corporations can avoid default, investors and analysts are increasingly convinced that both Prepa and the Highways & Transportation Authority will have to go through restructuring.
Prepa has combined operating losses of $1.022 billion during the past four years, with the public corporation losing $275 million in fiscal year 2013 and $346 million in fiscal 2012. It falls below utility-industry performance benchmarks in a wide range of areas and fails to employ standard industry practices aimed at holding down costs and assuring operational efficiency, according to a November 2012 report by consultants Álvarez & Marsal commissioned by the GDB.
The report found Prepa was worth about half its outstanding long-term debt. Its preliminary value range for Prepa was $3.5 billion to $4.1 billion at a time when its net debt was $6.9 billion. Today, its debt is $9.28 billion.
Mutual funds mounting a legal challenge against the Recovery Act are aiming to amend their lawsuit to include arguments that Prepa could meet its obligations without defaulting on its debts to bondholders.
The timeframe of federal court proceedings in the legal challenge of Puerto Rico’s new Recovery Act is taking shape as a federal judge in Puerto Rico ordered both sides the make their cases by October.
The Recovery Act allows ailing public corporations to restructure their debts through a bankruptcy like process in local courts. The law provides two avenues for the public corporations to restructure their debt. A Chapter 2 filing would allow public corporations to create plans that postpones or reduces debt service payments with the consent of a majority of creditors. A Chapter 3 filing would allow public corporations go through the local courts if voluntary repayment plans cannot be reached with a majority of creditors.
The plaintiffs filed their lawsuit against the Recovery Act in the U.S. District Court in San Juan in June arguing that the Puerto Rico law is unconstitutional and that only Congress has the power to pass bankruptcy legislation. Franklin Funds holds $907.1 million in Prepa bonds and Oppenheimer Rochester Funds holds $821.4 million in Prepa bonds. They lodged an amended suit this week to include arguments that government power utility could meet its obligations without defaulting on its debts to bondholders.
The plaintiffs say Prepa has other avenues to shore up its finances including: raising rates; the Puerto Rico government could repay over $640,000,000 it owes to the utility; the commonwealth could reduce Prepa’s taxes and subsidies which the brief asserts amount to over $1 billion from 2014 through 2018; Prepa should collect its full accounts receivable and pay subsidies after debt service instead of permitting customers to offset subsidies from their payments; Prepa should cut costs and address inefficiencies; and should strengthen its capital markets reputation by hiring an investment banker and making public presentations.
“The ease with which the numerous alternative solutions could be implemented underscores that the Recovery Act is not reasonable or necessary to serve any public purpose,” the funds said.
The second amended complaint reiterates that a Prepa filing under the Recovery Act is both “probable and imminent.” The summary judgment motion seeks summary judgment on two of the plaintiffs’ claims: that the Recovery Act is constitutionally and statutorily preempted, and that the Recovery Act’s automatic stay provisions are illegal to the extent they purport to preclude a federal court action. The motion asserts that these two claims are “purely legal, and will not be clarified by further factual development.”
Prepa recently acknowledged it was in talks with 60 percent of investors holding and ensuring 60 percent of the bonds in circulation, as well as with banks providing a credit facility to buy oil to produce electric power.
A $20 billion New York-based hedge fund, Blue Mountain Capital Management, filed a second lawsuit in late July, calling Puerto Rico’s restructuring law an attempt to “erect an unconstitutional bankruptcy regime” to subvert the contractual rights of investors.
The commonwealth government and Prepa are seeking to have the lawsuits dismissed. They argue that because Prepa has not filed under the Recovery Act there is no case or controversy to adjudicate.
In defending the constitutionality of the Recovery Act, the government lawyers are highlighting the fiscal crisis affecting Puerto Rico and the right of the commonwealth government to use its “police powers” during what they describe as an “emergency situation.”
They also emphasized that the Recovery Act provides similar treatment to creditors and establishes similar procedures to federal bankruptcy law in arguing that this is a legitimate move by Puerto Rico to resolve its fiscal situation, just as other jurisdictions stateside like Detroit have undertaken.
The Puerto Rico Electric Power Authority has struck deals with bondholders and creditors that will give it liquidity but require a restructuring of the ailing public utility.
Prepa gets lifelines from banks and bondholders in exchange for reforms
Fitch: Shifting Investor Mix Bifurcates Puerto Rican Bond Market
NEW YORK--(BUSINESS WIRE)--
The number of hedge funds trading Puerto Rico (PR) bonds is increasing, although exposure to specific credits has become bifurcated by whether they support or oppose the new Public Corporation Debt and Enforcement Recovery Act, according to a new report from Fitch Ratings.
Fitch estimates there are now over 60 alternative fund managers holding more than $16 billion of the island's debt in aggregate. Some of these fund managers support the Recovery Act in order to ring-fence commonwealth obligations from PR public corporations while others are suing to annul it.
On the traditional side, total U.S. mutual fund ownership of PR bonds has declined to 52% of the $65.1 billion market. But the remainder is concentrated among two large U.S. fund managers who together hold more than $23 billion of PR bonds. On contrast, Fitch-rated U.S. closed-end funds across 14 other fund managers have reduced their PR holdings on average by 65% since summer of 2013. Remaining exposure is being held in sales tax and general obligation issuers, half of which is insured.
Fitch estimates that over $23 billion, or 36% of the $65.1 billion Puerto Rico bond market currently carries monoline credit protection, which provides a secondary source of repayment.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Big Changes for Puerto Rico Bond Market (Shift to New Investors Creates Bifurcated Trades)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756147
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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Yuriy Layvand, CFA, +1 212-908-9191
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10001
or
Ian Rasmussen, +1 212-908-0232
Senior Director
or
Kellie Geressy-Nilsen, +1 212-908-9123
Senior Director
FitchWire
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com
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