Puerto Rico is preparing to overhaul its heavily indebted public power company as the U.S. territory's government faces a July deadline to approve a new budget and make a roughly $400 million payment to the utility's investors amid growing concerns that public agencies could go bankrupt.
Officials are negotiating with creditors after submitting a long-awaited restructuring plan that calls for investing at least $2.3 billion in the island's Electric Energy Authority and revising rate structures, Lisa Donahue, the authority's chief restructuring officer, said Tuesday.
Regardless of what type of final plan may be approved, Puerto Rico residents will see some sort of electric rate increase, she told The Associated Press.
"It's inevitable," she said.
The plan calls for everyone, including creditors and the government, to help bear the financial burden of a company that has more than $9 billion in debts, with officials noting that the current rate structure does not cover costs or debt service requirements.
A summary of the plan released late Monday also proposes to convert power plants so they can burn both natural gas and fuel oil and to create private-public partnerships for building new plants and operating the system.
Critics warned that a rate increase would further harm the struggling economy in Puerto Rico, which is in the eighth year of a recession and where power bills are already on average twice those of the U.S. mainland.
"An increase will not benefit anyone," said Puerto Rico's delegate to Congress, Pedro Pierluisi. "It's going to affect our battered economy and even the authority's own revenues."
Officials have not publicly released the full plan, citing the continuing negotiations with creditors. They expect it will be approved by month's end, although Donahue declined to say how the $400 million payment due in July might be affected if a plan was not approved and whether a debt restructuring would then be inevitable.
Concerns remain about the measures proposed, said Stephen Spencer, a managing director with Los Angeles-based investment bank Houlihan Lokey, an adviser to bondholders.
"While elements of the plan were positive from our perspective, there were also aspects that were unworkable and will require further negotiation," he said in a statement.
The bondholder group offered in April to invest $2 billion to improve the power company's finances and infrastructure, and Donahue said officials are still seeking the best way to attract more capital.
Economist Gustavo Velez said in a phone interview that the public power company should quit producing electricity and become just a distributor of power generated by others.
"It's a monopoly," he said. "They have to bring in private companies that can produce energy ... The plants are obsolete. They are inefficient and have serious infrastructure problems, and the authority does not have the money to update them."
In all, Puerto Rico's government is struggling with $72 billion in public debt.
Our island government is more than $70 billion in debt and there are differing viewpoints on the best way to face this issue. As we consider our options, we should look to our roots. In the Puerto Rico where I was brought up, we learned to keep our promises and pay our debts. I believe that we should rely on that ethos, those values passed on from generation to generation, as we confront our current economic challenges.
One of the most important questions today is whether Puerto Rico’s public corporate instrumentalities, now under the iron-fist control of the incumbent governor more than any other time before, should be allowed to file for Chapter 9 bankruptcy protection. In fact, a bill under consideration in the Judiciary Committee of the U.S. House of Representatives, H.R. 870, would allow Puerto Rico to do just that. But I strongly question whether that is the best path forward.
For one thing, Puerto Rico has benefited greatly from investors buying its bonds. This investment has funded education, social services, energy development, transportation networks and other infrastructure and community development projects for our people. If we were to take the easy way out and declare bankruptcy, the way forward would not be so easy. Investors would be understandably wary of buying our debt in the future, and we would have to pay much higher interest rates to attract funds. Why would we want to harm the next generation because we can’t handle our own debts?
What’s more, there are many viable alternatives available to us. One example is how the present rule of law in Puerto Rico already provides for the judicial branch to appoint an objective receiver for such troubled entities. The receiver can right the ship, fixing management issues and straightening out financial quandaries.
Another factor at play is that many of the holders of the bonds that constitute most of the debt of Puerto Rico’s agencies are willing to negotiate to avoid a dire situation. More than two-thirds of the bondholders of the Puerto Rico Electric Power Authority (PREPA), for example, have publicly expressed their willingness to negotiate with PREPA and have proposed a $2 billion plan that includes new investments on the island. We should also consider the public-private partnerships that have proven to be effective in the past in our island, such as the one operating our international airport and some of our tollways.
We should be looking to options such as these as we think about how we should deal with our current situation. After all, this type of creative and collaborative solution would be a chance not only to address the bond repayment issues at PREPA and other similar public instrumentalities but also to design and put in place real operational fixes that could benefit the future and reverse the mismanagement and mistakes that have pushed us to this situation in the first place.
As Puerto Ricans, we were raised to know that we pay our debts and we keep our promises. When it comes to the body politic that represents all of us, this situation is no different. Let’s not throw an obstacle into our long-term prospects and hurt our ability to access the capital markets down the road. Instead, let’s take the high road, follow our moral values and abide by our commitments.
González is vice chairwoman of the New Progressive Party of Puerto Rico and of the Republican Party in Puerto Rico. She is a former Speaker of the Puerto Rico House of Representatives, where she currently serves as minority leader.
It is shaping up as a hectic summer for investors in Puerto Rico’s more than $70 billion in outstanding debt.
On Monday, the U.S. commonwealth’s publicly owned electric monopoly presented creditors with a restructuring plan, a month before a roughly $400 million payment comes due that analysts say the utility doesn’t have.
The plan includes efforts to modernize the authority and increase efficiencies, with a goal of stabilizing power rates, according to Chief Restructuring OfficerLisa Donahue,who declined to talk about a possible debt restructuring, citing continuing confidential talks with creditors.
The power authority, known as Prepa, is negotiating with creditors ahead of a June 4 deadline to extend talks or face a possible default. Prepa has been drawing on reserves to make debt payments and doesn’t have enough in those accounts to make the July payment, its trustee said in an April bond disclosure.
The episode highlights the volatility of Puerto Rico’s fiscal situation as the commonwealth and its indebted public agencies face a series of deadlines in coming weeks, each of which has the potential to change investor attitudes toward the island’s debt.
The average price of Puerto Rico bonds sold last year rose above 84 cents on the dollar last week, their highest level since March, after lawmakers approved a sales-tax increase and moved toward a value-added tax, according to Municipal Market Data. That bolstered confidence that Puerto Rico can balance its budget and borrow enough to avoid running out of cash.
ButGuy Davidson,director of municipal investments at AllianceBernstein, which manages about $33 billion in tax-exempt debt, said the island still must deliver spending cuts and a plan for economic growth, which remains elusive amid a decade of stagnation.
“Our view is that all these things they have to do—raise taxes, lower expenses, take on debt—all of these things are short-term solutions,” he said. His firm is avoiding Puerto Rico bonds.
Investors are waiting on lawmakers to wrap up a budget by July and sell an additional $3 billion in bonds. The government says it may have to shut down by September if it can’t raise fresh funds.
Puerto Rico lobbyists, meanwhile, are fighting on Capitol Hill to clear a potential path to bankruptcy. As a commonwealth, the island is currently excluded from chapter 9 of the U.S. bankruptcy code, the statute that covers municipalities like Detroit. Puerto Rico is working to change that.
Daniel Hanson,an analyst at Washington-based investment researcher Height Securities LLC, prepared a calendar last week packed with more than two dozen important dates and deadlines for Puerto Rico stretching through June 2016.
“They’re now up against a real serious material liquidity constraint, and they have yet to deliver on reform, despite two years of grandstanding about it,” he said.
Puerto Rico’s bonds also have benefited from low interest rates in the $3.7 trillion market for debt sold by U.S. state and local governments, which have left investors pushing into riskier securities in pursuit of higher yields. Hedge funds bought more than half of the debt offered in the island’s $3.5 billion bond sale in 2014, and investors includingJeffrey Gundlach’s DoubleLine Capital have been purchasing the island’s debt.
Ms. Donahue said Prepa’s plan calls for about $2.3 billion in capital investment, which will involve a competitive bidding process for third parties to build and operate new generating plants. Creditors, which include funds managed by Franklin Templeton Investments and OppenheimerFunds Inc., have proposed a $2 billion plan to revamp Prepa, saying it would provide the agency with liquidity while replacing its antiquated, oil-burning generators with natural-gas facilities.
A consortium ofNRG EnergyInc.,ITC HoldingsCorp.and York Capital Management also is proposing a $3.5 billion plan to modernize Prepa. That would include building new natural-gas facilities and transmission lines and selling power to Prepa, saving the authority money. The plan doesn’t include job cuts at Prepa and doesn’t spell out what Prepa would do with money saved, saidJeff Rosenbaum,managing director at York, which oversees about $26 billion.
Stephen Spencer,a managing director at investment bank Houlihan Lokey who is financial adviser to Prepa’s bondholders, said that, while some elements of Prepa’s proposal will require further negotiation, “Overall, we feel the plan provided a basis for this further collaboration, and we remain committed to finding a fair solution for all parties.”
The authority is still talking with creditors about extending the June 4 deadline, Ms. Donahue said.
Whatever the immediate outcome at Prepa, which has extended numerous deadlines with creditors, there is still much work ahead.John Miller,co-head of fixed income at Nuveen Asset Management LLC, which manages about $100 billion in municipal bonds, ticked off a summer to-do list for Puerto Rico that included passing a budget, issuing the new bonds, paying short-term notes and implementing the tax changes.
“I think there’s a lot left to be accomplished,” he said.
Puerto Rico's governor on Friday signed into law a tax bill expected to provide the commonwealth with about $1.2 billion in much-needed additional tax revenue for the next fiscal year.
Governor Alejandro Garcia Padilla signed the tax law, which allows Puerto Rico to pursue negotiations with hedge funds and other creditors over a bond deal of up to $2.95 billion. Finance officials have said the island could run out of money by the end of September without financing. The key part the tax plan is an increase in the local sales tax to 11.5 percent from its current 7 percent.
Puerto Rico's governor on Friday signed into law a tax bill that is expected to provide the commonwealth with about $1.2 billion in much-needed additional tax revenue for the next fiscal year.
The tax law, signed in by Governor Alejandro Garcia Padilla, allows Puerto Rico to pursue negotiations with hedge funds and other creditors over a bond deal of up to $2.95 billion. Finance officials have said the island could run out of money by the end of September without financing.
"This consensus measure mitigates the difficult fiscal situation facing the Puerto Rico government," said Victor Suarez, the chief of staff of the governor's office. "Now we must complete the presentation of a balanced budget and the implementation of austerity measures to secure services and essential projects for our development."
The key component of the tax plan is an increase in the local sales tax to 11.5 percent from its current 7 percent. It comes after weeks of wrangling sparked when House lawmakers defeated a bill to create a 16 percent value added tax.
(Reporting by a contributor in San Juan; Editing by Megan Davies and Lisa Shumaker)
Puerto Rico's governor has signed into law a bill increasing the U.S. territory's sales tax from 7 percent to 11.5 percent. It is scheduled to go into effect July 1.
The law signed by Gov. Alejandro Garcia Padilla on Friday night also calls for a new 4 percent tax on professional services that will go into effect later this year.
The taxes are expected to generate up to $1.2 billion in revenue.
Gubernatorial Chief of Staff Victor Suarez said in a statement that the new law will help relieve the dire fiscal situation of Puerto Rico's government. The U.S. island is struggling with $72 billion in public debt amid a nearly decade-long economic slump.
Legislators are now debating a proposed $9.8 billion budget that calls for $674 million in cuts.
Legislators on Tuesday narrowly approved an increase in the U.S. territory's sales tax to help generate more revenue and offset a deep fiscal crisis.
Gov. Alejandro Garcia Padilla is expected to sign the bill that would increase the tax from 7 percent to 11.5 percent, as well as create a new 4 percent tax on professional services. The sales tax increase would go into effect July 1 and the new tax on Oct. 1, with a transition to a value-added tax by April 1.
If approved, it would be the highest sales tax compared with any U.S. state.
Officials said the proposed increase could help generate $1.2 billion in revenue as Puerto Rico struggles through its eighth year of recession and faces a $72 billion public debt. Officials previously warned the government could shut down soon if emergency measures were not taken.
The approval ends a months-long heated debate where legislators rejected other proposals to generate money including a 14 percent value-added tax as the U.S. territory's economic crisis worsened.
If Garcia signs the measure, it will help Puerto Rico access the market and issue up to $2.95 billion in bonds as planned, said economist Jose Villamil, a former U.N. consultant and CEO of an economic and planning consulting firm. But government officials still need to take other steps to help boost the economy, including implementing a tax reform, he said in a phone interview.
"Clearly, the fiscal situation will not be solved by this bill," he said, adding that the sales tax increase could have been lower had legislators approved it earlier this year.
"We would be in a much better position today," he said. "A lot of important revenue was lost during that time."
The measure received the minimum 26 votes needed in the island's House of Representatives after the Senate narrowly approved it with amendments on Monday.
Resident Commissioner Pedro Pierluisi of the main opposition party said the measure would have a negative impact on Puerto Rico's economy.
"It will kill your own pocket and our economy little by little," he said. "This new tax will keep leading to closures and lost jobs."
Legislators are now expected to debate a proposed $9.8 billion budget that calls for $674 million in cuts. It also sets aside $1.5 billion to help pay off Puerto Rico's debt, an increase of $400 million from the current fiscal budget. The government has announced that it plans to close nearly 100 schools and 20 public agencies in a bid to save money and cut costs.
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That ugly B word, bailout, has come to dominate debate in Washington about Puerto Rico’s debt crisis.
One side argues that passing a bill allowing Puerto Rican government agencies to restructure their debts will stave off an eventual bailout of the whole island. The other side says that’s all wrong: The very act of approving the legislation will constitute a bailout.
The public battle for ownership of the word underscores how despised such assistance remains in America seven years after the financial crisis. It also shows how the U.S. territory’s $72 billion debt saga has become a booming business for Washington lobbyists, who are developing websites, creating advertisements and lining up the support of conservative advocacy groups.
“Puerto Rico may soon reach a height of budget crisis that can be addressed only through a massive bailout package from the federal government,” says a Web page for the Puerto Rico Fiscal Stability Coalition, an organization promoting passage of the bankruptcy bill. A group of 35 asset managers, including Fir Tree Partners Inc., Brigade Capital Management LLC and Monarch Alternative Capital LP also supports the bill.
A website set up by 60 Plus Association, a senior-citizen advocacy group, opposes the legislation.
“Make no mistake: Extending Chapter 9 bankruptcy protection to Puerto Rico is not a way to avoid a bailout,” says NoBailout4PR.org. “It is a bailout.”
Bond Risk
Opponents also include BlueMountain Capital Management LLC, OppenheimerFunds Inc. and six other investment managers, who are “not coordinating with any third-party advocacy groups at this time,” according to Dan Zacchei, their spokesman. They are fighting the bill because they own bonds issued by the Puerto Rico Electric Power Authority, or Prepa, so bankruptcy would put their holdings at risk.
The 35 asset managers and other supporters own Puerto Rico’s general-obligation and sales-tax bonds, so restructuring Prepa’s debt would leave more money to pay off their holdings.
Puerto Rico Electric Power Authority
The U.S. territory’s legislature passed a bill this week raising the sales tax to 11.5 percent, higher than in any state, to ease the financial strains. The junk-rated island’s woes have been a topic of debate on Capitol Hill since February, when Pedro Pierluisi, the island’s resident commissioner in the U.S. House of Representatives, introduced H.R. 870.
Amend Code
The legislation would amend the Federal Bankruptcy Code to treat Puerto Rico as a state, giving it the option to authorize its municipalities and public agencies to file for Chapter 9 protection. This would help Prepa restructure its $8.6 billion of debt.
Chapter 9 currently doesn’t apply in Puerto Rico, a territory since the Spanish-American War.
The lobbying efforts focus on Republicans, who control the House. BlueMountain, Franklin Resources Inc. and several other investment managers have hired former high-ranking Republican staffers from the House Financial Services Committee and Senate Banking Committee who now work at Venable LLP, a law and lobby firm, to defeat the bill, according to disclosure records.
Others that oppose the legislation include Tea Party activists and the Alexandria, Virginia-based 60 Plus, which describes itself as a “seniors advocacy group with a free enterprise, less government, less taxes approach.”
‘Shortchange Millions’
“Chapter 9 is a bailout and a deliberate effort by Puerto Rico to evade its debt obligations,” 60 Plus Chairman Jim Martin said in a press release. “It would shortchange millions of seniors, pensioners and other unwitting Puerto Rican bondholders who placed their faith -- and life savings -- in Puerto Rican bonds, only to see the rules changed.”
On the other side, the 35 asset managers favoring the legislation share that support with the Puerto Rico Fiscal Stability Coalition, co-chaired by former Puerto Rico Governor Luis Fortuno. Russ Grote, a spokesman for the managers, declined to comment on whether they provided any financial support.
The coalition’s spokesman, Phil Anderson, is a former special assistant to Dan Quayle, U.S. vice president from 1989 to 1993, and held positions in the National Republican Party. He is now president and a founder of Navigators Global LLC, a Washington-based lobbying group that has set up English- and Spanish-language websites and produced video ads targeting the Puerto Rican public and Congressional members and staff.
Allowing Puerto Rico entities to file for bankruptcy would prevent what Anderson calls the “potential collapse” of the $3.6 trillion municipal-bond market, about 40 percent of which is held directly by U.S. households. An orderly restructuring would allow debtors and creditors to settle the dispute without involving taxpayers, he said.
“What solution is in the best interest of the U.S. taxpayer and what’s the most conservative solution to apply to the problem,” Anderson said in a telephone interview. He declined to say who is funding the fiscal-stability coalition’s publicity campaign or to quantify its budget.
Darrell Issa, a Republican from California, has been the most outspoken member of Congress in questioning the legislation.
“Do we have a constitutional and legitimate role in retroactively changing contracts in place so that a bankruptcy can occur?” Issa asked during a February hearing on Pierluisi’s bill before the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law.
Regular Meetings
Pierluisi is meeting regularly with members of the House Judiciary Committee to argue that the bill isn’t a bailout, Carmen Feliciano, his chief of staff, said in an interview.
The committee’s chairman, Republican Representative Bob Goodlatte of Virginia, recently met with Puerto Rico Governor Alejandro Garcia Padilla to discuss the economic consequences of the legislation. While Goodlatte hasn’t backed it, he feels the committee has responsibility to review its merits, according to an aide.
The full panel hasn’t taken up the bill, however, and it hasn’t been introduced in the Senate, where Puerto Rico doesn’t have a representative, so opponents may win by default. Given the difficulty Congress has passing any legislation, the likelihood of enacting H.R. 870 is low, according to Daniel Hanson, an analyst in Washington with Height Securities LLC.
Matt Fabian, a partner at Concord, Massachusetts-based Municipal Market Analytics Inc., says Puerto Rico’s deteriorating situation increases the chance of Congress considering the bill at some point, which is why opponents and supporters are boosting the amount of money they’re spending.
The island and its agencies have amassed more debt than all but two U.S. states, and the bonds have traded at distressed levels for more than a year. The commonwealth’s newest general obligations, which mature in July 2035, yield about 9.85 percent, or about 6.7 percentage points above benchmark debt.
“There is so much money being invested in the Puerto Rico-related strategies,” Fabian said. “The bill might move in the future.”
Following a months-long heated debate, Puerto Rican legislators narrowly approved an increase in the commonwealth's sales tax to generate more revenue and help stem the island's serious financial crisis. If approved, it would be the highest sales tax compared with any state in the U.S.
Puerto Rico's governor, Alejandro García Padilla, is expected to sign the bill, which will increase the sales tax from 7 percent to 11.5 percent. The legislators also agreed to create a new 4 percent tax on professional services. The sales tax increase would go into effect July 1 and the new tax on Oct. 1, with a transition to a value-added tax by April 1.
Puerto Rican officials said the tax increase could help generate $1.2 billion in revenue. The island is in its 8th year of recession and faces a $72 billion public debt. Puerto Rico's governor said the government could shut down soon in a few months f emergency measures were not taken.
If the measure is signed, it could help Puerto Rico access financial markets to issue up to $2.95 billion in bonds as planned.
Puerto Rico's Resident Commissioner Pedro Pierluisi, of the opposition New Progressive Party, said the measure would have a negative impact on Puerto Rico's economy. "This new tax will keep leading to closures and lost jobs," he said.
Following the sales tax debate, legislators will now take up the issue of a proposed $9.8 billion budget that includes calling for $674 million in cuts. The government has announced that it plans to close nearly 100 schools and 20 public agencies in a bid to save money and cut costs.
The proposed budget also sets aside $1.5 billion to help pay off Puerto Rico's debt, an increase of $400 million from the current fiscal budget.
Democrats and a coalition of patient advocates, insurance companies, and labor unions are urging the Obama administration to intervene after funding for a Medicare program that benefits the elderly and disabled in Puerto Rico was reduced, a move they warn will deal a blow to the island’s already wounded economy.
In April, an agency within the United States Department of Health and Human Services announced the payment structure for the Medicare Advantage program. The Puerto Rico Healthcare Crisis Coalition said the calculations slash program premiums by 11% on the island while increasing them by about 3% for those on the mainland, compared with the previous year.
The Centers for Medicare & Medicaid Services, which sets the rates for the Medicare program run by private insurers, declined to confirm the calculations.
Dennis Rivera, chairman of the coalition, told BuzzFeed News the unjust cuts jeopardized the well-being of Puerto Ricans and hurt the territory’s struggling economy. Unemployment in Puerto Rico stands at about 11.8%, compounded by a debt of about $72 billion.
Puerto Rico’s health care system, which makes up about 20% of the island’s gross domestic product, faces a $500 million hit as a result, Rivera said. Some 2.3 million people — about 60% of Puerto Rico’s population — are enrolled in Medicare, Medicare Advantage, or Medicaid.
“We pay the same Social Security and Medicare taxes but get less than everyone else,” Rivera said.
The coalition launched a near-$1 million ad campaign in the D.C. and Baltimore region calling on Obama to increase funding to the Medicare Advantage program. The cuts, television spots warn, would hurt Puerto Rico’s entire health care system and bring about its “imminent collapse.”
Analysts, however, believe the coalition’s concerns have less to do with patients and more to do with the money health care providers are going to receive from health insurance.
The cuts stem from the Affordable Care Act, which called for a reduction to Medicare by about $716 billion between 2013 and 2022. An analysis from PolitiFact found that while Medicare spending will continue to increase, the Affordable Care Act will slow its expected growth by reducing funding to Medicare Advantage, which falls onto insurance companies and hospitals, not beneficiaries.
Andrew Schwab, a senior legislative representative for AARP, said the federal government was paying 14% more for the same services in Medicare Advantage than it was for Medicare. The Affordable Care Act cut funding as a way to align costs between the two.
The payments don’t affect beneficiaries, Schwab said; rather, they reduce the payments the government was making to insurance companies.
“I would suspect [health providers] are concerned that health insurance companies are going to limit or reduce the amount of money they pay them for services,” Schwab said of the Puerto Rico campaign. “But the idea that there’s a business battle between providers and insurance companies certainly predates the Affordable Care Act.”
Still, the island’s Medicare Advantage is already paid 60% of the average rate in the states, said the Puerto Rico Healthcare Crisis Coalition. This comes amid a brain drain in Puerto Rico driven by an eight-year recession.
Doctors, seeking higher pay and better reimbursement from insurers, are leaving the U.S. territory for the mainland. The Wall Street Journal reported that data from the University of Puerto Rico’s School of Medicine shows that roughly 30% of its residents leave the island once they complete their training, particularly among those specializing in family medicine, obstetrics, and gynecology.
Rivera said the Department of Health made the disproportionate cuts, which affect about 560,000 Puerto Ricans enrolled in the program, because they believed there would be no consequences.
“There are no senators, congressmen in the U.S. advocating for them,” Rivera said. “This campaign is a call for national unity in Puerto Rico and the U.S.”
The U.S. territory has a non-voting delegate in the House of Representatives called the resident commissioner, a title currently held by Pedro Pierluisi. Puerto Rico doesn’t have any senators in Congress.
Rep. Nydia Velazquez, a New York Democrat seen as a leader in the Puerto Rican community, also denounced the proposed cuts.
“Puerto Rico can no longer bear the burden of inequality from unconscionable federal cuts to essential services,” Velazquez said in a statement. “Access to quality healthcare is not a privilege; it is a right for every American. ”
In a statement, Rep. Pierluis said he was disappointed the Centers for Medicare & Medicaid Services didn’t change its rates for Puerto Rico even after he provided the agency with data to justify them.
Officials with the Centers for Medicare & Medicaid Services told BuzzFeed News it received a number of comments regarding the rates but that in most cases the agency determined it did not have the legal authority to make those changes. It declined to state who had the authority to make those changes.
The Puerto Rico Healthcare Crisis Coalition launched a campaign denouncing reductions to a Medicare program they say disproportionately affects Puerto Ricans. Analysts say the campaign is more about the money health care providers will lose.
The Puerto Rico Tourism Company (PRTC) stated today that the first edition of the International Tourism Expo (ETI) – Puerto Rico was a definite success. More than 90 exhibitors from local and international companies and more than 480 travel agents from the United States, Europe, Latin America, China and Puerto Rico participated in the event which had an estimated impact of $900,000 to the local economy.
Puerto Rico Tourism Company’s Executive Director, Ingrid I. Rivera Rocafort, said, "We are extremely pleased with the accomplishments of this first edition of ETI. The expo was an excellent opportunity to promote our island as a leading destination in the Caribbean and highlight all the attributes - natural beauty, gastronomy and infrastructure - that make Puerto Rico a world class, five-star destination for both leisure and business travel."
The Executive Director also shared that ETI had an economic impact of nearly $900,000. Hotel reservations amounted to nearly 1,000 rooms per night. Hundreds of travel agents attending ETI took advantage of the 18 different tours offered exclusively for them on Wednesday and Saturday.
This first edition of ETI served as a showcase to highlight the experiences and opportunities available to travelers looking to enjoy the beauty, nature, sports, adventure and gastronomy of Puerto Rico, as well as international destinations such as Colombia, Mexico, St. Kitts, St. Martin, USVI, BVI and Barbados, among others. The three-day schedule included a day devoted exclusively to the general public and attracted a total of 2,300 people.
ETI Puerto Rico was possible due to the support of the Government of the Commonwealth of Puerto Rico in cooperation with local and international organizations such as the Caribbean Tourism Organization (CTO), Puerto Rico Hotel and Tourism Association (PRHTA), Meet Puerto Rico, ASTA, and Puerto Rico Travel Agents Association (APAV).
Puerto Rico’s descent into junk has made its bonds more attractive to Goldman Sachs Asset Management and OppenheimerFunds Inc. even as their rivals flee.
Goldman Sachs increased its stake in Puerto Rico bonds to $1.3 billion as of May 5 from $351 million in February 2014, when the island was cut to speculative grade, according to data compiled by Bloomberg. OppenheimerFunds has snapped up sales-tax backed debt since the downgrade.
The two are bucking the trend among the 10 largest mutual-fund holders of Puerto Rico bonds by increasing their stakes as yields on some securities have climbed to 10 percent. That’s the equivalent of almost 18 percent for top earners when factoring in the tax exemption. Those payouts are alluring with municipal-bond yields holding near a five-decade low.
“There’s a point where there’s going to be value -- these securities aren’t worthless,” said Gabe Diederich, a research analyst at Wells Capital Management, which ranks seventh among mutual-fund owners of Puerto Rico bonds. It holds mostly insured debt. “We have been hearing more and more that traditional buyers have been looking at buying Puerto Rico again.”
Too Speculative
The split among the mutual funds highlights how Puerto Rico debt has increasingly become too speculative for many municipal-bond buyers, who seek tax-free income, not the outsized returns chased by hedge funds.
OppenheimerFunds’s increased stake keeps it the biggest mutual-fund owner of Puerto Rico bonds. The push from Goldman Sachs elevated the company’s rank to third from eighth since February 2014. Franklin Resources Inc.’s holdings have declined by more than $1 billion since then, though it’s still the second-biggest owner.
The jump in Goldman’s investment began with the commonwealth’s record junk deal in March 2014 and kept going as it more than tripled its ownership of the securities. The buying was led by its Strategic Income Fund, which invests in global bonds and uses derivatives to bet that asset prices will fall.
New York-based OppenheimerFunds has made Puerto Rico a core holding for years because it’s tax-free nationwide. The company’s position in sales-tax bonds, known as Cofinas, increased to $325 million by the end of 2014, up from $40.6 million earlier in the year, Bloomberg data show. The securities, which don’t mature until 2057 and aren’t insured, trade at about 65 cents on the dollar.
Insurance Split
Andrew Williams, a spokesman for Goldman Sachs in New York, declined to comment on the holdings, as did Ray Pellecchia, a spokesman for OppenheimerFunds. Stacey Johnston Coleman, a spokeswoman for San Mateo, California-based Franklin, also declined to comment.
Puerto Rico and its public agencies are struggling with $72 billion of debt and a sluggish economy. Bond prices have been trading at distressed levels for more than a year on speculation the island won’t be able to pay all investors.
Last week, its House of Representatives passed a tax plan that may help the commonwealth balance the fiscal 2016 budget. That pushed Puerto Rico’s newest general-obligation bonds to a two-month high. The Senate passed an amended version Monday, sending it back to the House.
OppenheimerFunds created a “Puerto Rico Roundup” part of its website and said its shareholders “may want to bookmark” it. The most-recent commentary on May 20 said elected officials usually “know better than to contemplate compromises related to their full and timely payments on general obligation debt.”
Different Roadmaps
MacKay Shields and Capital Group Cos., the fourth- and eighth-biggest holders, respectively, have expanded their ownership by largely buying insured debt. They weren’t in the top 10 when the island lost its investment-grade rank.
Nuveen Asset Management, which oversees more than $100 billion in munis, has been paring its position: It was the third-largest holder of Puerto Rico bonds in February 2014. It now ranks sixth.
“The lack of a roadmap for how you get to recovery, and what that recovery might be, is one of the hardest things to figure out right now,” said John Miller, co-head of fixed income in Chicago at Nuveen. “We’d want to have a better sense of that before committing capital.”
Eaton Vance Management, at ninth, has about 95 percent of holdings backed by insurers, said Craig Brandon, who helps oversee the company’s $28.6 billion in munis.
‘No Referee’
“There came a point where we were uncomfortable with each credit on an individual basis,” Brandon said. “Without Chapter 9, you’re playing the game with no referee -- anything can happen out there.”
Unlike U.S. local governments, Puerto Rico’s indebted authorities, including its public-power company, can’t file for bankruptcy to have their debt restructured in court.
Allison Scott, a spokeswoman for MacKay, said most of the company’s $330.8 million in Puerto Rico bonds are insured. Neither Robert DiMella nor John Loffredo, the co-heads of muni investments, were available for an interview, she said.
Below is a table of the fund companies with the biggest Puerto Rico holdings.
Spokespeople or money managers for the funds declined to comment, with the exception of those cited above.
The figures are based on the most recent company filings to Bloomberg, except for MacKay, which provided more up-to-date data. The tallies exclude derivatives and debt that’s pre-refunded or escrowed to maturity.
Bond values were calculated as position multiplied by market price. Pricing figures are from either Municipal Securities Rulemaking Board trade data or Bloomberg Valuation data, and if neither are available, par or accreted value.
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Rank Debt Holder Amt (Millions)
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1 OPPENHEIMERFUNDS INC. $5,469
2 FRANKLIN RESOURCES INC. $2,275
3 GOLDMAN SACHS GROUP INC. $1,294
4 MACKAY SHIELDS $331
5 LORD ABBETT & CO. $318
6 NUVEEN ASSET MANAGEMENT $314
7 WELLS FARGO & CO. $287
8 CAPITAL GROUP COS. $281
9 EATON VANCE MANAGEMENT $251
10 INVESCO LTD. $248
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The project envisions a superyacht marina and dry dock maintenance, repair and overhaul facility at the Port of San Juan
SAN JUAN, Puerto Rico, May 26, 2015 /PRNewswire/ -- The Puerto Rico Ports Authority (PRPA), a public corporation and government instrumentality of the Commonwealth of Puerto Rico, has issued a request for proposal (RFP) for the leasing, design, construction, operation and financing of the rehabilitation, improvement and operation of the Isla Grande Dry Dock ("IGDD") in the City of San Juan, Puerto Rico, and the design, construction, financing, and development of a superyacht marina complex.
The PRPA is seeking comprehensive proposals from highly qualified developers and operators of luxury marinas and vessel maintenance, repair and overhaul facilities. Investors interested in submitting a proposal to the PRPA may access the RFP document, as well as the Proponent Registration Form, at www.puertoricomarinadistrict.com [http://www.puertoricomarinadistrict.com/]. The due date to submit the Proponent Registration Form is June 15, 2015, and the due date for the Proposal is June 24, 2015 at 2:00 PM (EST).
Ingrid C. Colberg-Rodriguez, executive director of the PRPA, said "Puerto Rico is going to be the premier destination in the Caribbean for maintenance, repair and overhaul services of luxury vessels, while further fostering the growth of the service and tourism industries on the island. The RFP seeks to obtain proposals to transform the IGFF into a leading maritime-industrial center for yacht and superyacht maintenance, and develop a Marina Site to provide services and luxury shopping, dining and accommodations for the yachting community."
Meanwhile, Alberto Baco-Bague, secretary of the Puerto Rico Department of Economic Development and Commerce, said that "our fiscal advantages, diversified economy, physical infrastructure, human capital, and privileged location in the Atlantic Ocean and Caribbean Sea, make Puerto Rico an ideal spot for a first-class marina and a facility for maintenance, repair and overhaul of leisure vessels and superyachts."
The RFP Project is adjacent to the Puerto Rico Convention Center District, home to one of the largest convention center facilities in the region, with an area of 600,00 square feet, and the Isla Grande Airport (SIG), a regional airport owned by the PRPA with the capacity to receive private jets, charters and fixed-based operators. The Project is also centrically located with easy access to major highways.
The RFP Project would be part of the Port of San Juan, the busiest ocean terminal in the Caribbean, and one of the leading cruise ports in the Western Hemisphere. Over the last five years, the Port of San Juan has received on average close to 500 cruise ships on 14 cruise lines, 1.4 million passengers, and 2,340 cargo ships moving approximately 8.3 million short tons of cargo per year.
As a Commonwealth of the United States, Puerto Rico shares a common military defense, market, currency and citizenship with the United States. The Commonwealth exercises virtually the same control over its internal affairs as is the case for any of the 50 United States.
Puerto Rico's Senate sent a tax bill that seeks to raise $1.2 billion back to the lower chamber on Monday in a further delay to the law which the U.S. territory needs to raise financing and ease its precarious fiscal situation.
Puerto Rico is trying to negotiate a bond deal of up to $2.95 billion with hedge funds, which have been pushing for revenue-raising tax measures. It is also seeking short-term financing that officials say is needed to prevent a government shutdown at the start of the fiscal year on July 1.
José Nadal Power, chairman of the Senate's treasury committee, said after a caucus meeting on Monday that he hoped it would "only take a few more days" to send the bill to the governor to sign.
The Senate eliminated a last minute amendment that made its way into the House bill on Thursday. Various food industry sectors had objected to the amendment, which would have expanded the sales tax to include processed, canned and frozen food items.
The Senate's decision to eliminate the amendment means the bill goes back to the lower chamber. The Senate passed the rest of the bill intact. The key provision is an increase in the sales tax to 11.5 percent from 7 percent. It was narrowly approved by the House last Thursday after weeks of opposition.
The Senate passed the bill by 14 votes to 12 votes and has recessed until Thursday.
If the House, which meets on Tuesday, does not object to its amendment being eliminated, the bill can go to Governor Alejandro Garcia Padilla for signing. If it does object, a conference committee will need to work on a consensus bill, which would still need approval from both chambers.
Puerto Rico, with around $72 billion in total debt, has been in or near recession for almost a decade, and its population is shrinking due to migration to the U.S. mainland.
(Reporting a contributor in San Juan Writing by Edward Krudy; Editing by Richard Chang)
