Puerto Rico oversight board wants lawsuits to remain frozen

Puerto Rico's financial oversight board on Friday said litigation brought by creditors against the U.S. territory should remain on pause while the island works to resolve $70 billion of debt its government has said it cannot pay.

In a brief filed in federal court in San Juan, Puerto Rico, the seven-member board said the Puerto Rican rescue law known as PROMESA requires the lawsuits to stay frozen. This would allow the board to fulfill its mandate of overseeing the island's fiscal turnaround plan and facilitating debt restructuring talks with creditors, it said.

With residents emigrating to the U.S. mainland in droves and nearly half of those left on the island living in poverty, Governor Alejandro Garcia Padilla has demanded sharp cuts in payments to bondholders, calling it necessary to afford government services.

PROMESA, signed by President Barack Obama on June 30 after earning bipartisan support in Congress, called for creditor lawsuits against Puerto Rico to be put on hold, or "stayed," while the federally appointed oversight board gets up to speed on the fiscal situation.

But creditors have filed at least a dozen lawsuits both before and since the law's passage, and in several cases have claimed the stay does not apply to them.

The lawsuits generally allege Puerto Rico violated the U.S. Constitution by imposing a debt moratorium this year, allowing it to forgo certain payments and redirect revenues that had been earmarked for debt to cover other expenses instead.
The creditors claim to be exempt from the stay because they are not seeking an actual payment of debt, just a declaration that the moratorium was unlawful.

Judge Francisco Besosa's decision on the stay, expected in days or weeks, could be crucial. Lifting the stay could allow the merits of Puerto Rico's financial decisions to be hashed out in messy, expensive court proceedings -- exactly the scenario PROMESA was designed to avoid.

The oversight board, appointed in August, on Friday asked Besosa for permission to intervene in the cases. In an attachment to that request, the board laid out its opposition to lifting the stay, saying "ongoing litigation is a major distraction that interferes with the (board's) congressional mandate."

Forcing Puerto Rico to respond to several lawsuits "is a significant expense ... and a burdensome distraction" to officials "whose time would be better spent working with the oversight board."

By Nick Brown



A woman carries bags while walking in a commercial area with stores either closed or offered for sale in San Juan, Puerto Rico, July 31, 2015.

Puerto Rico oversight board wants lawsuits to remain frozen

IT’S ON: BONDHOLDER GROUPS SQUARE OFF OVER PUERTO RICO FINANCING

On Oct. 7, a group of hedge funds that hold the general obligation bonds of Puerto Rico amended an existing complaint (initially filed in July) in a significant respect: by adding a new defendant.

The new defendant is the issuer of the “COFINA” bonds, the Puerto Rico Sales Tax Financing Corp.

A head-to-head clash between the holders of GO bonds and the holders of COFINA bonds, a clash that has been in the works for a long time, is now officially … on.

COFINA, meaning both the financing corporation and the class of bonds it issues, have been around for 10 years now. Puerto Rico desperately needed revenue in 2006, and it was running up against its constitutional debt ceiling. The Commonwealth’s constitution says that payment of principal and interest obligations under issued debt cannot exceed 15% of “average annual revenues raised under the provisions of Commonwealth legislation.”  Payments were approaching that limit a decade ago, and as-ever helpful Goldman Sachs stepped in with a plan. The COFINA bonds, issued by a quasi-private corporation and paid from a dedicated revenue stream, would not count against that 15%.

Voila! The deal was done.

The deal was done, sanctioned by Act No. 91, and the new corporation issued the bonds. Yet Puerto Rico continued over the coming years to lurch toward insolvency.

Debt levels expanded, nearly tripling, from $25 billion at the turn of the millennium to $73 billion 15 years later.

The flight of manufacturing is part of the reason for this quandary. In 1996 the Clinton administration and Congress agreed on a ten-year phase out of section 936, a tax break that had encouraged U.S. manufacturers to maintain operations on the island. In ’96 there was a bipartisan consensus in Washington that phasing this out was a wise deficit-reduction move. Surely it is no coincidence that the crisis that demanded the creation of COFINA bonds came about just after the phasing-out of section 936 was completed.

In 2014, the legislature passed a Recovery Act, parts of which mirrored chapters 9 and 11 of the Federal Bankruptcy Code, creating court-managed restructuring processes.

In 2015, as default closed in on Puerto Rico, a working group mandated by the same Recovery Actdeveloped a plan of action that entailed “the clawback of revenues supporting certain Commonwealth tax supported debt” which might be used to “service all principal and interest on debt that has a constitutional priority.” This sounded to some of the COFINA bondholders like a threat to their distinct status as recipients of dedicated revenue.

That September, acting through their law firms, Quinn Emanuel and Orrick Herrington, the senior COFINA bondholders sent a collective letter to the island’s Central Bank and fiscal agent, the Government Development Bank. The law firms demanded assurances of their clients’ rights, and urged the GDB to do its “ministerial duty to untangle the COFINA debt and revenue from that of the Commonwealth.”

In June of this year, the U.S. Supreme Court struck down the Recovery Act, holding that it is preempted by the federal bankruptcy system.

Since the SCOTUS Decision

But that system didn’t really contain any measures that would address Puerto Rico’s crisis, so Congress (effectively acting at the Supreme Court’s invitation) stepped in with the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) signed into law later that month.

The law contains a section offering creditors “protection from inter-debtor transfers,”[407(a)] a section which may be interpreted as addressing such questions as the mingling of CODINA with Commonwealth asset pools.

This brings us back to where we began. In July, several management firms sued Governor Padilla under PROMESA to ensure that Puerto Rico continues to pay GO bondholders in full.  Aurelius Capital Management, Autonomy Capital, Covalent Partners, FCO Advisors, Monarch Alternative, and Stone Lion Capital have now explicitly added COFINA, demanding that GO be given priority, essentially demanding precisely the mingling that Quinn Emanuel and Orrick Herrington were demanding assurances against in September 2015.

It’s on.

IT’S ON: BONDHOLDER GROUPS SQUARE OFF OVER PUERTO RICO FINANCING

Puerto Rico Begins $89 Million Entertainment District Project

Puerto Rico has launched construction on a major new project in the Convention Center District of San Juan.

The new District Live, as it’s called, is an $88.9 million project that will create the largest entertainment center in Puerto Rico.

“With this project, we will strengthen the [convention district’s] offer, so that the island compete more effectively to host the most important conventions of the United States, the Americas and the world,” said Puerto Rico Governor Alejandro Garcia Padilla.

The project is being built by a partnership between Island Hospitality Partners, led by the PRISA Group, along with the Puerto Rico Convention Center District Authority.

Led by developer PRISA Group, District Live is a public-private partnership that is largely being funded by Banco Popular, Oriental Bank, Banco Cooperativo and the Bank of Economic Development, the latter of which contributed $8 million.

PRISA is one of the island’s biggest tourism developers in recent years, having developed the Dorado Beach Resort (anchored by the Ritz-Carlton Reserve) and two recent Hyatt Place & Casino projects in Puerto Rico, among a larger portfolio.

The project will be highlighted by a 6,000-seat concert and entertainment venue with 105,000 square feet of space aimed at hosting events, concerts, festivals, award ceremonies and corporate events.

It will also include an eight-screen Caribbean Cinemas VIP Cineplex; a 170-room luxury hotel with 6,000 square feet of meeting space; a 44,000-square-foot Plaza with the Caribbean’s largest LED screen and outdoor presentation stages.

That will be joined by an 18,000-square-foot day and night disco, along with TV and radio broadcast studios and more.

AEG has been tapped to undertake the management and operation of the concert venue.

“This new venue for live entertainment is the perfect anchor for what we believe will be the region’s most vibrant and popular settings for events, conventions and performances of all types,” said Bob Newman, President, AEG Facilities.  “Situated just steps from one of the most picturesque waterfronts as well as a thriving convention center and nearby urban core, District Live! will instantly become one of the area’s most visited destinations for both residents and tourists alike.”

The project is expected to produce 3,300 construction jobs.

If you’re immediately reminded of the LA Live entertainment district in downtown Los Angeles, that’s with good reason: AEG is behind the creation of LA Live, which was a $3 billion investment across six city blocks adjacent to the Staples Center.

Puerto Rico Begins $89 Million Entertainment District Project

Fiscal board imposes new rules on Puerto Rico amid crisis

A new federal control board overseeing Puerto Rico's finances amid a dire economic crisis voted on Friday to expand its powers and require indebted public agencies to be more accountable as members grilled the island's governor for the first time about the U.S. territory's economy.

The board said no Puerto Rico government agency can proceed with any non-routine transaction without its permission, such as issuing debt.

It also demanded that six public agencies including the Government Development Bank, the island's largest public university and its utility companies submit their own fiscal plans for the first time.

The measures drew ire from protesters who interrupted the Friday meeting in New York with yells of "Shame on you!" and "Long live a free Puerto Rico!" The gathering was streamed online.

The federal control board was created in late June after U.S. President Barack Obama signed a rescue package that in part aims to restructure some of the island's nearly $70 billion public debt and temporarily protect it from creditor lawsuits seeking to recover millions of dollars invested in local government bonds.

Those creditors have since sued to recover their money and a judge is mulling over the case.

Puerto Rico's governor on Friday urged the board to intervene in the case, stressing that the island could not keep providing essential services if it has to pay its debt. The board said it will express its position on the issue next week.

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During the nearly three-hour meeting, Gov. Alejandro Garcia Padilla presented a 10-year fiscal plan and urged the seven board members not to take more austerity measures.

"I have faced relentless pressures to fire workers, reduce pensions and pay full amounts owed to bondholders. You will, too," he said. "I withstood that pressure and now encourage you to do the same."

Garcia does not get to vote on any of the board's measures, and it is unclear what other steps it might take later.

After Garcia's presentation, he and other Puerto Rico government officials were grilled about the island's finances. In a response to one question, Treasury Secretary Juan Zaragoza said Puerto Rico's central government owes up to $350 million to suppliers and vendors while public agencies owe some $1 million.

The governor warned that if nothing changes on the island, it will face a cumulative deficit of $34 billion in the next decade.

The next meeting is set for November, after the board has reviewed Garcia's fiscal plan.

"I'm sure we'll have loads and loads of follow-up questions," said board member Ana Matosantos.

• By DANICA COTO

Fiscal board imposes new rules on Puerto Rico amid crisis

Puerto Rico's economic troubles offer opportunity for women

Ten years ago, Sheilla Torres Nieves left her home country of Puerto Rico to pursue her graduate degree in upstate New York.

Torres Nieves had chosen Rensselaer Polytechnic Institute to earn her doctorate in mechanical engineering. It was a long way from home, but she wasn’t scared.

With her husband, also an engineering student, the two created a renewable energy technology company around their studies. Last year they decided to relocate the startup and return to San Juan.

It might sound like a strange choice considering the economic calamity Puerto Rico is currently facing. But Torres Nieves, like many women, is taking advantage of the ways the island’s hardships benefit female business owners.

“There’s a huge sector here that has seen the crisis as an opportunity to reshape what used to be the motor of the economy,” Torres Nieves said.

Puerto Rico is floundering under immense debt, which reached $72 billion as of July. The government has spent more money in the last decade than it has taken in, and much of the debt is in the form of municipal bonds that the Puerto Rican government issued to cover revenue shortfalls and expenses when businesses started leaving the island around 2006.

Although the island is a U.S. territory, Puerto Rico can’t file for a court-arranged bankruptcy reorganization like cities such as Detroit have done in the past. Puerto Rico also can’t go to the International Monetary Fund for relief without being a sovereign nation, like Greece did under similar circumstances.

So it’s fallen to local entrepreneurs like Torres Nieves to help turn Puerto Rico’s economy around.

Melissa Wylie
Puerto Rico's economic troubles offer opportunity for women

Puerto Rico Continues the Struggle to Restructure its Debts

When we last discussed the Commonwealth of Puerto Rico’s efforts to restructure some $72 billion in municipal debt, a Federal District Court Judge had found the Commonwealth’s 2014 municipal debt-restructuring law, the “Recovery Act,” to be pre-empted by the federal Bankruptcy Code, unconstitutional and therefore void. The ruling hinged on the definition of “State” under Section 101(52) of the Bankruptcy Code, which explicitly excludes Puerto Rico for the purpose of determining eligibility for Chapter 9 restructuring.  Puerto Rico had designed the Recovery Act specifically to provide a bankruptcy option for reducing public utility debts, which account for over a third of the U.S. territory’s total municipal debt burden.  With this option off the table, Puerto Rico and its creditors were forced to wait for the U.S. Congress to act by amending the Bankruptcy Code.

Much has happened since February. Notably, in mid-June, the U.S. Supreme Court affirmed the Federal District Court decision by a 5-2 margin, finding that Puerto Rico is indeed ineligible under the existing Bankruptcy Code and that pre-emption “bars Puerto Rico from enacting its own municipal bankruptcy scheme to restructure the debt of its insolvent public utilities.”

On June 30, 2016, just a few weeks after the Supreme Court ruling, President Obama signed into law the bipartisan “Puerto Rico Oversight, Management, and Economic Stability Act,” or “PROMESA,” which is a word meaning “promise” in Spanish. PROMESA is drafted to provide Puerto Rico with a breathing spell to help it restructure its debts, rather than simply discharge them.  The law imposed an immediate stay of all litigation and collection actions directed against Puerto Rico that will remain in effect until at least February 15, 2017 and can be extended for up to 135 more days.

Shortly after the enactment of PROMESA, Puerto Rico missed a $1 billion principal and interest payment due in early July and a smaller $10 million interest payment in September. These missed payments triggered defaults on general obligation bonds, which are backed by the “full faith and credit” of the Commonwealth.  Puerto Rico’s next major principal and interest payment date occurs in January 2017.

PROMESA required President Obama to appoint members to a seven-member board, which he did on August 31, to oversee the debt restructuring efforts. The law entrusts the board with broad powers to make nearly every fiscal decision for the government of Puerto Rico and to negotiate with creditors.  The board began meeting in late September and set an October 14 deadline for Puerto Rico’s governor to deliver a plan for fiscal sustainability, along with requirements to deliver weekly cash flow reports and monthly revenue and tax collection reports.  However, the board has the authority to reject the governor’s fiscal plans and impose its own at its discretion.

The oversight board also has indicated that it expects to set deadlines for the submission of fiscal plans from Puerto Rico’s sewer authority and electric utility. Complicating matters somewhat is the fact that Puerto Rico’s political leadership will soon turn over, as the island’s unpopular governor is not running for reelection in November.  So, responsibility for executing the fiscal sustainability plan that is expected to be presented later this week will fall to a regime that did not design it.  Time is of essence, however, as funding shortfalls at Puerto Rico’s utilities have caused serious performance issues, including recent island-wide blackouts.  The utilities desperately need restructuring negotiations to reopen their access to credit markets.

Because fiscal plans are due to be presented to the oversight board soon, significant debt payments are on the horizon and November’s elections will result in a change in leadership in Puerto Rico, this will continue to be a situation to monitor closely over the coming weeks and months.

by Andrew M. Simon
Puerto Rico Continues the Struggle to Restructure its Debts

Puerto Rico Set for Record Cruise Season

Puerto Rico is breaking a record once again. In 2015 the Port of San Juan, Puerto Rico’s number one port, brought in a record of 1.5 million passengers. They are now on track to break the record again in the 2017-18 season with a projected 1.6 million passengers.

The expansion of Pier 3 in Old San Juan has opened up the door to many “mega ships” in Puerto Rico with more on the way. They are also looking forward to the arrival of MSC Cruises’ Seaside for her maiden season as well as Norwegian Cruise Line returning to homeport in San Juan.

Viking Ocean Cruises will find her first Caribbean home port in San Juan with Viking Star sailings from October to April. In addition, they are expecting several new ships to arrive in time for the winter season including Carnival Vista and Harmony of the Seas.

Because of the growth in tourism, more excursions and tours have been added to meat the high demand and give cruisers more opportunity to explore and get to know the Island.

Ingrid Rivera Rocafort, Executive Director of the Puerto Rico Tourism Company, gave the following statement:

“The cruise business, a vibrant industry sector for us, has posted 22% growth over the previous four fiscal years.” She also says that the expansion of Pier 3 in Old San Juan was a key factor in luring “mega cruise ships.”

The island is hosting the 23rd Annual Florida Caribbean Cruise Association (FCAA) Cruise Conference and Trade Show in San Juan. One hundred executives representing nineteen cruise lines will be engaging in business discussions with attendees for the four-day event, plus over seven hundred and fifty delegates from tour operators and fellow Caribbean destinations.

by Amanda Souza 
Puerto Rico Set for Record Cruise Season

Call to Congress

The members of a Joint Congressional Task Force are currently evaluating a wide range of initiatives to jump start the economy of Puerto Rico, a United States Territory since 1898, and one that has been on a prolonged recession since the third quarter of 2004. The Task Force was formed as part of the implementation of Puerto Rico Oversight Management and Economic Stability Act, better known as ‘PROMESA.’ 

The Task Force will oversee the development, by the local government, of a viable, tactical and strategic economic plan aimed at restoring economic progress and providing stability to the almost 3.5 million American citizens that reside on this Caribbean Island. It will also look to alternatives, such as tax incentives and stimulus packages, in order to reverse this historic recession, the longest in U.S. history.

Among the many suggestions being floated is a massive, 85 percent to be exact, federal tax credit to multinational companies that establish subsidiaries in Puerto Rico. The so-called Section 245A, a proposed amendment to the U.S. Internal Revenue Code pushed by the same political party that 40 years ago brought Section 936, lacks the provisions needed to generate sustainable growth and create new jobs.

Back in the mid-1970s, then-Gov. Rafael Hernandez Colon insisted on a similar initiative, Section 936, which gave these same companies targeted by Section 245A, a 100 percent tax exemption in all profits generated in Puerto Rico. After 30 years, Congress voted to phase out Section 936, arguing that the excessive cost, the small number of companies that applied for it and the even smaller return, in terms of job creation, did not justify it. Section 936 failed to achieve its stated goals mainly because the few companies that used this tax shelter did not ‘invest’ in Puerto Rico as proportionally as they should have done. This is probably the same fate that awaits Section 245A.

In essence, Section 936 was a profit-shifting operation that allowed some big companies based in Puerto Rico to purchase supplies and materials from their corporate headquarters at a much lower than usual rate, while selling the finished product back at the highest price, thus inflating profits.

Job creation should be the main cornerstone of any mechanism devised by the Joint Task Force to provide help to our ailing economy. One of the many problems that doomed Section 936 was the discrepancy, compared to other U.S. jurisdictions, of the few jobs it actually managed to create.

In 1993, a GAO report concluded that companies that applied for tax credits under Section 936 were making an average of $69,800 per employee, while the worker wages averaged less than $22,800. This is a huge discrepancy. In fact, actual job creation in 936 companies during its 30 year span was 45 percent less than that of other territories with similar tax breaks. Simply put it, Section 936 do not create jobs or improve the quality of wages because it lacked a trigger mechanism aimed at job creation.

There’s simply no provision in the proposed Section 245A, as was in the case of its close ‘cousin’, Section 936, that will guarantee tie-ins of tax revenue with the creation of new and well compensated jobs.

Time it’s of the essence. We know that the current government in Puerto Rico must present a viable economic plan to the Task Force, as required by PROMESA. This, Section 245A is not that. Congress needs to act now in order stimulate our economy.

Jose Aponte-Hernandez is a state representative in Puerto Rico and is the former Speaker of the House for the territory.The views expressed by authors are their own and not the views of The Hill.

By Jose Aponte-Hernandez
Call to Congress

Analysis: Puerto Rico oversight board's success may hinge on the ballot box

A forthcoming financial turnaround plan for Puerto Rico, which the territory's oversight board wants on its desk in nine days, will probably change after the island's November election. For the board, it could be a welcome scenario.

The bi-partisan board, created by the Puerto Rico rescue law known as PROMESA, set Oct. 14 as a deadline for the territory's governor Alejandro Garcia Padilla to deliver a draft plan for how to boost island revenues and tackle its $70 billion debt.

Garcia Padilla has unsettled Puerto Rico's creditors by insisting on deep debt cuts and defaulting on some payments, but he is not seeking a second term, so it will ultimately fall to his successor to work with the board to finalize the plan.

Ricky Rossello, the leading candidate for his job, is seen as more likely to deliver a plan compatible with the philosophy of the board. Its members include bankruptcy experts and bankers - technocrats expected to push for long-term stability, not just a quick financial fix or a massive debt cut that might be appealing to Puerto Rican politicians.

The 37-year-old Rossello, a member of the opposition party, told Reuters in an interview he wanted to shrink the territory's government to avoid further debt defaults, and in contrast to Garcia Padilla, opposed cuts to principal on the island's most senior debt.

"My view is general obligation debt should not take a haircut, but the good news is they have seemed willing to renegotiate terms - to refinance or extend," he said, referring to the island's most senior debt and its holders.

The board is largely reviled in Puerto Rico, where locals feel it infringes upon the U.S. territory's self-governance. Rossello and his main opponent, ruling party member David Bernier, have both taken issue with the scope of the board's powers, but said they would cooperate with it.

Daniel Hanson, a Height Securities analyst who closely follows Puerto Rico, said he expected the board's relationship with the new governor to be "some combination of strained and pragmatic" regardless of who wins.

Hanson added, though, that the board may find more common ground with Rossello than Bernier. "I think the board is going to find more in the Rossello policy that makes sense to them," he said.

ABUNDANT CHALLENGES

Puerto Ricans on Nov. 8 will choose a new governor, both houses of the legislature, mayors and local officials in what polls suggest could be a clean sweep for the opposition.

An ailing economy and a probe into the ruling party's alleged fundraising fraud have hurt its approval ratings and an August poll by Puerto Rico's top circulation newspaper, El Nuevo Dia, put Rossello 7 points ahead of his rival.

There is no shortage of problems a turnaround plan may address: Aside from its debt, Puerto Rico faces a $45 billion hole in its pension system, a healthcare system nearing collapse and public schools falling short of federal standards. Nearly half of its 3.5 million residents live in poverty and the population is dwindling as locals, who are U.S. citizens, flock to the mainland United States. (Graphic: tmsnrt.rs/2dr6nKd)

At its inaugural public meeting on Sept. 30, the board formally asked Garcia Padilla to deliver a draft plan within two weeks, but also acknowledged it could be revised as Puerto Rico's leadership changes.

"The plan is not static," Jose Carrion, the board's chairman, told reporters.

The board has wide powers, including approving Puerto Rico's annual budgets, reviewing the government's financial accounts and spending habits, and working with that government on projects to spur economic growth.

Rossello said his fiscal turnaround plan would replace a plethora of government employers with one, so workers could be shifted between public agencies. It would transfer several government agencies to private companies or nonprofits, and cut the overall budget by 10 percent, he said.

The savings, coupled with moderate debt restructuring that would preserve principal for senior bondholders, would avoid defaults without government job cuts, Rossello said.

Bernier's turnaround plan would focus more on cutting debt and salvaging essential services, specifically pension payments, said Bernier's running mate, Hector Ferrer. Bernier was not made available for an interview.

In both cases, candidates could have a hard time imposing their visions on debt restructuring, because under PROMESA, facilitating restructuring talks is the job of the board, not the governor.

Hanson was also skeptical Rossello can accomplish savings without shrinking government headcount. "It's hard to imagine how simply consolidating agencies can result in significant budgetary savings without layoffs," he said.

The governor could have more leeway with issues like privatization and consolidation, both among agencies and municipalities, Hanson added.

By Nick Brown
Analysis: Puerto Rico oversight board's success may hinge on the ballot box

Puerto Rico power company faces scrutiny after blackout

The top debt restructuring official for Puerto Rico’s troubled power company said Tuesday at a legislative hearing on last month’s island-wide blackout that the agency faces serious infrastructure problems despite borrowing millions of dollars in recent years.

Lisa Donahue, who is overseeing the restructuring of the Electric Power Authority, also said the U.S. Securities and Exchange Commission recently requested information related to bonds the agency sold in 2012 and 2013 amid a decade-long economic crisis. It was unclear whether the SEC has launched a formal investigation. Officials did not respond to a request for comment.

Donahue’s comments come as frustration builds over the blackout, which lasted several days after a fire at one of the company’s main power plants set off a cascade of power failures across the island. Puerto Rico senators are holding a hearing to examine what caused the fire and why power was restored so slowly.

Some of the legislators also questioned how the authority racked up $9 billion in debt.

“It is outrageous that no one has audited this debt and that no one can tell us how it spent $5 million,” said Sen. Ramon Luis Nieves, referring to money the company borrowed in recent years.

During her testimony, Donahue said the power company should explore privatizing its operations, particularly its division of energy generation. She said the agency’s system of transmission and distribution is in “dire need” of investment and maintenance.

The Electric Power Authority recently increased rates to help generate more revenue as it prepares to issue new bonds as part of a restructuring deal with bondholders. The move has further angered Puerto Ricans, who complain of spotty service and say they cannot afford higher fees amid a decade-long recession that has spooked investors and prompted an exodus to the U.S. mainland.

The company also faces numerous corruption allegations and accusations that it overcharges customers.

In June, the owner of the U.S. territory’s biggest oil supplier was arrested after being charged with misappropriating $11 million in public funds. Jose Gonzalez Amador and his company, PetroWest, are accused of charging the power company a 0.5 percent municipal tax even though some municipalities granted them a lower rate or waived the tax altogether. Authorities say the charge was then passed on to consumers.

Last week, a federal control board that aims to restructure a portion of Puerto Rico’s nearly $70 billion public debt took control of several government agencies, including the power company.

Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

By Danica Coto 
Puerto Rico power company faces scrutiny after blackout

Puerto Rico oversight board's success may hinge on the ballot box

A forthcoming financial turnaround plan for Puerto Rico, which the territory's oversight board wants on its desk in nine days, will probably change after the island's November election. For the board, it could be a welcome scenario.

The bi-partisan board, created by the Puerto Rico rescue law known as PROMESA, set Oct. 14 as a deadline for the territory's governor Alejandro Garcia Padilla to deliver a draft plan for how to boost island revenues and tackle its $70 billion debt.

Garcia Padilla has unsettled Puerto Rico's creditors by insisting on deep debt cuts and defaulting on some payments, but he is not seeking a second term, so it will ultimately fall to his successor to work with the board to finalize the plan.

Ricky Rossello, the leading candidate for his job, is seen as more likely to deliver a plan compatible with the philosophy of the board. Its members include bankruptcy experts and bankers - technocrats expected to push for long-term stability, not just a quick financial fix or a massive debt cut that might be appealing to Puerto Rican politicians.

The 37-year-old Rossello, a member of the opposition party, told Reuters in an interview he wanted to shrink the territory's government to avoid further debt defaults, and in contrast to Garcia Padilla, opposed cuts to principal on the island's most senior debt.

"My view is general obligation debt should not take a haircut, but the good news is they have seemed willing to renegotiate terms - to refinance or extend," he said, referring to the island's most senior debt and its holders.

The board is largely reviled in Puerto Rico, where locals feel it infringes upon the U.S. territory's self-governance. Rossello and his main opponent, ruling party member David Bernier, have both taken issue with the scope of the board's powers, but said they would cooperate with it.

Daniel Hanson, a Height Securities analyst who closely follows Puerto Rico, said he expected the board's relationship with the new governor to be "some combination of strained and pragmatic" regardless of who wins.

Hanson added, though, that the board may find more common ground with Rossello than Bernier. "I think the board is going to find more in the Rossello policy that makes sense to them," he said.

ABUNDANT CHALLENGES

Puerto Ricans on Nov. 8 will choose a new governor, both houses of the legislature, mayors and local officials in what polls suggest could be a clean sweep for the opposition.

An ailing economy and a probe into the ruling party's alleged fundraising fraud have hurt its approval ratings and an August poll by Puerto Rico's top circulation newspaper, El Nuevo Dia, put Rossello 7 points ahead of his rival.

There is no shortage of problems a turnaround plan may address: Aside from its debt, Puerto Rico faces a $45 billion hole in its pension system, a healthcare system nearing collapse and public schools falling short of federal standards. Nearly half of its 3.5 million residents live in poverty and the population is dwindling as locals, who are U.S. citizens, flock to the mainland United States. (Graphic: tmsnrt.rs/2dr6nKd)

At its inaugural public meeting on Sept. 30, the board formally asked Garcia Padilla to deliver a draft plan within two weeks, but also acknowledged it could be revised as Puerto Rico's leadership changes.

"The plan is not static," Jose Carrion, the board's chairman, told reporters. 

The board has wide powers, including approving Puerto Rico's annual budgets, reviewing the government's financial accounts and spending habits, and working with that government on projects to spur economic growth.

Rossello said his fiscal turnaround plan would replace a plethora of government employers with one, so workers could be shifted between public agencies. It would transfer several government agencies to private companies or nonprofits, and cut the overall budget by 10 percent, he said.

The savings, coupled with moderate debt restructuring that would preserve principal for senior bondholders, would avoid defaults without government job cuts, Rossello said.

Bernier's turnaround plan would focus more on cutting debt and salvaging essential services, specifically pension payments, said Bernier's running mate, Hector Ferrer. Bernier was not made available for an interview.

In both cases, candidates could have a hard time imposing their visions on debt restructuring, because under PROMESA, facilitating restructuring talks is the job of the board, not the governor.

Hanson was also skeptical Rossello can accomplish savings without shrinking government headcount. "It’s hard to imagine how simply consolidating agencies can result in significant budgetary savings without layoffs," he said.

The governor could have more leeway with issues like privatization and consolidation, both among agencies and municipalities, Hanson added.

(Reporting by Nick Brown; Editing by Daniel Bases and Tomasz Janowski)

By Nick Brown
Puerto Rico oversight board's success may hinge on the ballot box

Puerto Rico’s Cruise Growth

Puerto Rico’s cruise sector continues to grow, according to the island’s latest projections.

The island is on pace to break its cruise passenger records for the second time in three years, led by the Port of San Juan, which set a record last year with 1.5 million passengers.

The island now projects cruise passenger visitors to break that record with 1.6 million visitors in 2017-2018, led by increased calls from Royal Caribbean’s Oasis-class ships and the maiden season of MSC’s Seaside ship.

The port also expects homeport passengers to grow, as Norwegian Cruise Line returns to homeport in Puerto Rico’s capital and other lines like Royal Caribbean and Celebrity join them.

The growth has come in large part due to the expansion of Pier 3 in Old San Juan, which paved the way for megaships to arrive in Puerto Rico.

— CJ Staff

Puerto Rico’s Cruise Growth

Puerto Rico governor aims to present turnaround plan in two weeks

Puerto Rico's governor said on Thursday he has proposed to the U.S. territory's fiscal oversight board a timeline to present the board with a financial turnaround plan in two weeks.

Governor Alejandro Garcia Padilla announced the timeline as part of a televised address, ahead of the oversight board's first meeting, scheduled for Friday morning in New York.

The oversight board was appointed by U.S. lawmakers and President Barack Obama to manage Puerto Rico's finances and help stabilize an economy suffering from a decade-long recession, $70 billion in total debt and a poverty rate of 45 percent.

Under the federal law that created the board, the island's governor is tasked with presenting a financial turnaround plan, which the board must revise and approve.

(Reporting by Nick Brown in New York; Editing by Matthew Lewis)

Puerto Rico governor aims to present turnaround plan in two weeks