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  #301  
Old 07-31-2019, 08:17 PM
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Mary Pat Campbell
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https://truthout.org/articles/puerto...cancelled-now/

Quote:
Puerto Rico Still Suffers From Crushing Debt. It Should Be Cancelled Now.

Spoiler:
The massive protests in Puerto Rico were set off by a series of despicable intra-governmental messages. But they culminated a much longer process of predatory behavior on the part of international banks and the U.S. government, which is demanding that loans be paid on the backs of working people.

“Puerto Rico se levanta! Puerto Rico rises up!” is a chant that has gone from hopeful to combative. Immediately after Hurricane Maria, it was used to describe hope in the rebuilding process, as if to say, “Puerto Rico is getting back on its feet!” Now, however, the phrase has taken on a new meaning. Its use in the chants of last week’s massive protests is one of outrage.

Some of this outrage is certainly directed at the series of horrifyingly offensive and callous Telegram app messages in which Governor Ricardo Rosselló and other members of the government joked about the bodies of those killed in Hurricane Maria, made homophobic and misogynist comments and fantasized about acts of violence against their political rivals. The messages came on the heels of a huge embezzlement scandal in which Puerto Rican government officials defrauded the island’s budget to the tune of $15.5 million.

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But the anger of the people of Puerto Rico has been simmering for years, increasing at a serious clip since the devastation wrought by the hurricane. Even before then, infrastructure was crumbling—including even the power grid.

The economic desperation of the Puerto Rican population—with 44% living below the poverty line—is part of what former Governor Alejandro García Padilla aptly referred to as a “death spiral”—but he might as well have called it a debt spiral. The U.S. Congress simultaneously taxes Puerto Rican people at high rates and disproportionately starves the island of funding; this is compounded by predatory banks that have gutted the Puerto Rican economy for profit, as was only recently revealed.

The Scheme
The banks’ involvement is a story that has repeated itself on the international stage in various countries, such as Ireland. To stimulate an economy, a country provides massive tax breaks to businesses—usually manufacturing and pharmaceuticals—encouraging them to invest there. Once the economy is deemed strong enough, the tax breaks end, and the corporations simply pack up, shutting down their facilities and putting massive numbers of people out of work, so that they can move on to the next place they can exploit. The corporations, having gotten what they could with minimal expense, take care of themselves while the economy of the nation nearly collapses, leading to austerity measures that harm the same workers whom the companies already exploited for years.

In Puerto Rico’s case, however, it wasn’t even the Puerto Rican government that had the authority to make this deal, but the U.S. federal government—in which, incidentally, Puerto Rico has no representation.

After the damage done to the economy in 2006, which completed U.S. Congress’ phaseout of the tax breaks that had been discontinued by President Clinton, the economy was in serious trouble. According to USA Today: “While the mainland U.S. added millions of jobs following the Great Recession, Puerto Rico never got back on its feet. The island has lost more than 20% of its jobs since 2007.” The Puerto Rican government was desperate to borrow money.

So the international banking community began to facilitate massive loans to Puerto Rico, packaging the bonds into funds and enticing buyers with promises of stable interest. The investors—many of which were retirement and pension funds—were given very little information about what the bonds were actually for, since banks’ activities in Puerto Rico isn’t subject to even the meager amount of federal oversight they face on the U.S. mainland.

To rake in fees, banks traded more and more of these funds, in many cases targeting Puerto Rican people and their pension plans. And when it became clear that Puerto Rico couldn’t possibly repay the debt and that the economy was about to enter a recession, the banks ramped up their lending in order to quickly cover the losses they were about to face when other investments they had made on the island inevitably went bad. The U.S. federal governments fined some of the banks, but the fines were so low in comparison to what they were making that the practice actually sped up. For example, UBS was fined $34 million for its predatory practices, but afterward, UBS and other giant banks made another combined $900 million.

Now these bonds are nearly worthless, meaning pensions and retirement plans will be out millions of dollars. At this point, the Puerto Rican government itself owes $74 billion in debts and more than $53 billion in unfunded pensions. There is a movement to cancel the debt in order to allow the living conditions in Puerto Rico to become less abysmal, and this could help the people of the island get back on their feet.

Canceling the debt will mitigate the crisis, and it must be fought for. Still, some of the damage is done—those pension plans that invested in bonds will have lost out on the entire investment. So yet again, the banks made off with billions of dollars while the retirement funds of working people are in jeopardy.

Tapping the Puerto Rican Economy
Having failed to hold the banks and hedge funds accountable for what they’ve done to Puerto Rico, the U.S federal government now has total control over Puerto Rico’s economy, and it is just as predatory—taxing workers at levels comparable to those on the mainland but starving them of food, medical care and other resources.

For example, Puerto Rico gets proportionately less food assistance than the mainland. A third of Puerto Ricans need food assistance, and over half of that number consists of children. Yet the funding level is capped at the same amount each year. So in times of greater need, when the U.S. government’s meager funding leaves people in hunger, Puerto Rico must plead with Congress for even the smallest of increases—a process that generally takes months, during which children go hungry.

U.S. News and World Report has detailed other disproportionate figures: Puerto Rico gets less Medicaid per capita than the states, and reimbursement rates are lower. Islanders must pay the same FICA taxes as other U.S. workers, but they cannot collect Supplemental Security Income, which is elsewhere offered to aged, blind or disabled people with very low incomes. Puerto Ricans face a lower threshold for the requirement to pay income taxes, and the island’s government charges higher income taxes to try to make up for the shortfall elsewhere, so although they don’t pay federal income tax, they are squeezed to the same degree as those stateside.

Even as the government earned interest from the repayment of Puerto Rican bonds that were “triple tax-exempt” for investors, it has no intention of offering relief from the strain of taxes on the working people of the island. Yet Trump has been fighting to prevent additional aid to Puerto Rico since 2017 in the immediate aftermath of the hurricane, calling any increase in funding for Puerto Rico “excessive and unnecessary.”

While the discussion about the possibilities for Puerto Rican statehood or independencecontinues amid multiple referenda and a process tied up in a Congress that denies the island governmental representation, one thing is entirely clear: The disproportionate funding levels and the colonial and parasitical relationship of the United States to Puerto Rico means the debt must be refused.

The current anger of the people of Puerto Rico has been caused by U.S. Congress and the banks protected by international capitalism. Workers internationally must support them with our solidarity—their fight is ours.


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  #302  
Old 08-14-2019, 04:31 PM
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Mary Pat Campbell
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LAWSUITS

https://fixedincome.fidelity.com/ftg...a4ac0000_110.1
Quote:
MBIA sues nine Puerto Rico bond underwriters

Spoiler:
Bond insurers MBIA Insurance Corp. and National Public Finance Guarantee Corp. sued nine Wall Street firms on Thursday for their actions while underwriting Puerto Rico bonds.

MBIA (MBI) and its subsidiary National are seeking at least $720 million from UBS Financial Services, UBS Securities, Citigroup Global Markets, Goldman Sachs (GS), J.P. Morgan Securities, Morgan Stanley (MS), Bank of America (BAC) as successor to Merrill Lynch, RBC Capital Markets, and Santander Securities.

The bond insurers filed their suit in the Court of the First Instance, Superior Court of San Juan, in Puerto Rico.

Essentially, the insurers argued that the financial firms provided them incomplete and misleading information about the Puerto Rico issuers’ financial conditions prior to the insurers agreeing to insure the bonds.

Official Statements are examples of this information. The insurers said that under federal securities laws the issuers were required to investigate the information in the official statements. “The banks did not scrutinize these materials as they assured the market they would,” the insurers said.

In the documents the financial firms handed to the insurers prior to the bond sales, “the issuers’ debt service coverage ratios were overstated, and they had not spent and likely would not spend their funds as represented.”

“Just like the commonwealth and the people of Puerto Rico, National was misled by the underwriters of the commonwealth’s bonds,” said Bill Fallon, chief executive officer of MBIA (MBI).

In their suit, the insurers acknowledge that they have no statutory claims against the financial firms. They say their suit is under “doctrina de actos propios” (doctrine of proper acts) and the doctrine of unilateral declaration of will. Both have roots in Spanish law, which still underpin much of Puerto Rico’s local laws.

All the defending firms in this case were offered a chance to provide a statement to The Bond Buyer. They all failed to do so or said they had no comment.

The financial firms were underwriters for Puerto Rico public sector bonds.

National has paid over $720 million in claims on its insured Puerto Rico bonds and is expecting to pay out hundreds of millions of dollars more. This is the origin of the insurers’ claim for at least $720 million.

National insured more than $11 billion of Puerto Rico bonds. National said it insured the bonds when they were issued from 2001 to 2007.

The doctrina de actos propios “is designed to protect ‘legitimate expectations’ and ‘good faith’ and to ‘prohibit … behavior that would result in an unreasonable interference with a legitimately created trust relationship, that allowed the other party to reasonably rely on the original conduct,’” the insurers said in its suit.

The claim of unilateral declaration of will applies when “’a person might have an obligation towards another person, as long as their intention is clear, arises from a suitable judiciary act and is not contrary to the law, the moral or the public order,’” the insurers said, quoting from a 2014 court decision.

The insurers’ losses wouldn’t be so large if Puerto Rico and its Oversight Board had chosen to observe basic principles of municipal finance since the bankruptcy, said Chapman Strategic Advisors Managing Director James Spiotto. Spiotto pointed to Puerto Rico and the board’s unwillingness to observe guarantees for paying special revenues in bankruptcy and the Puerto Rico Constitution’s priority on paying general obligation interest.

If these were followed, the insurers would probably be less interested in launching their lawsuit against the financial firms, Spiotto said.

Vicente & Cuebas and Selendy & Gay are the law firms representing the insurers.



https://fixedincome.fidelity.com/ftg...PR_____DC36809
Quote:
National and MBIA Insurance File Lawsuit Against Wall Street Banks for Misconduct as Underwriters in Puerto Rico's Fiscal Crisis

Spoiler:
SAN JUAN, Puerto Rico, Aug. 8, 2019 /PRNewswire/ -- Today, National Public Finance Guarantee Corporation and MBIA Insurance Corporation (collectively, "National" or "Plaintiffs") filed suit in the Court of First Instance, Superior Court of San Juan, Puerto Rico, against eight major Wall Street banks to hold them accountable for inequitable conduct in Puerto Rico's municipal bond market that contributed to Puerto Rico's economic collapse.

Plaintiffs are bond insurers that have been presented with, and fully honored, over a billion dollars in claims after the municipal debt underwritten by the banks became unsustainable on their terms for the Commonwealth and its agencies and they defaulted on their obligations. The lawsuit names as defendants UBS Financial Services, Inc.; UBS Securities LLC; Citigroup Global Markets Inc.; Goldman Sachs & Co. LLC; J.P. Morgan Securities LLC; Morgan Stanley & Co. LLC; Merrill Lynch, Pierce, Fenner & Smith Inc.; RBC Capital Markets LLC; and Santander Securities LLC.

Each bank underwrote one or more bonds issued by each of the Commonwealth, the Puerto Rico Electric Power Authority, the Puerto Rico Highways and Transportation Authority, and the Puerto Rico Sales Tax Financing Corporation. The Complaint alleges that, for over a decade, these banks urged Puerto Rico and its agencies to issue massive amounts of this debt, allowing the banks to profit from underwriting and selling the bonds, as well as from related interest rate swap, refinancing and other transactions. In their capacity as underwriters, the banks had a fundamental 'gatekeeper' responsibility that assured the markets that these municipal bonds could be repaid. But, as shown by a Special Investigation Report prepared for Puerto Rico's Financial Oversight and Management Board, the banks did not conduct appropriate due diligence, resulting in key disclosures being materially false or misleading. These diligence failures concealed essential facts that would have demonstrated that the debt was not sustainable and could not be repaid in accordance with its terms.

This debt burden ultimately forced the Commonwealth from the municipal markets, leaving it and its public institutions—like power utilities, hospitals, schools, and essential infrastructure on which millions of Puerto Ricans rely—in financial distress. Bond insurers like National have paid billions of dollars in claims payments to date, while uninsured municipal bond investors, including many Puerto Ricans, have suffered huge losses.

"We are honored to represent National in this litigation," said Philippe Selendy, founding partner of Selendy & Gay, counsel for National and former lead counsel for the Federal Housing Finance Agency in its RMBS litigations. "As alleged in the Complaint: 'El legado de la conducta injusta de los bancos afectará a Puerto Rico por generacione. Éstos no solo desatendieron su obligación de actuar como celosos guardianes, sino que se aprovecharon de las circunstancias imperantes en Puerto Rico, llevando a Puerto Rico directamente a su crisis actual. Mientras los bancos se enriquecían, le infligían graves daños al Gobierno de Puerto Rico y a sus ciudadanos, al igual que a National. Deben por tanto responder por esta conducta ilícita.'"[i] [English translations have been made available in the endnotes].

The Complaint is based upon two equitable doctrines of Puerto Rican law—doctrina de actos propios and declaración unilateral de la voluntad.

According to Federico Hernández Denton, former Chief Justice of the Supreme Court of Puerto Rico and counsel for National, "The Complaint alleges: '[L]os Demandados, por medio de sus actos, le garantizaron a los demandantes que habían realizado investigaciones completas y razonables de los términos de los bonos que los demandantes aseguraron, y éstos de buena fe confiaron en dichas representaciones, al emitir sus seguros. Pero los Demandados frustraron las expectativas legítimas y de buena fe de los demandantes, al no llevar a cabo esas investigaciones y en torno a la veracidad y de las representaciones que hicieron en las solicitudes de seguro….Estas circunstancias extraordinarias ameritan que se aplique la doctrina de actos propios y/o de declaración unilateral de la voluntad.'"[ii]

In the face of the bonds' defaults, National has paid every cent of every claim on its policies—over a billion dollars—to cover the losses of insured investors.

"Just like the Commonwealth, and the people of Puerto Rico, National was misled by the underwriters of the Commonwealth's bonds," said Bill Fallon, CEO of MBIA Inc., the parent company of the Plaintiffs.

"This time of turmoil should be the occasion for rebuilding. National insured its first Puerto Rico government bond more than 30 years ago and to date has insured more than $15.7 billion of debt for Puerto Rico issuers," Fallon added. "Our insurance has helped Puerto Rico raise the money to build schools and hospitals and other vital public services. We're proud of that. The future of Puerto Rico and the integrity and transparency of the capital markets demand that the underwriters be held accountable."

Philippe Selendy, awarded "Litigator of the Year, Grand Prize" by The American Lawyer, has recovered over $35 billion for his public and private clients. Lauded by the Financial Times as "The Man Who Took on Wall Street," AmLaw reported that the Federal Housing Finance Agency "hit the jackpot" when it hired Mr. Selendy to lead its "litigation assault on Wall Street" that recovered billions for taxpayers in the aftermath of the Great Recession.

Retired Chief Justice of the Supreme Court of Puerto Rico, Federico Hernández Denton has over 50 years of expertise in law practice and litigation. He was Chief Justice of the Supreme Court of Puerto Rico (2004-2014), when he retired from the Court after presiding the Judicial Branch of Puerto Rico. Upon his retirement, he was appointed by the U.S. District Court of Puerto Rico as a Constitutional Lawyer of the Monitor of the Puerto Rico Police Commission.

MBIA Inc., headquartered in Purchase, New York is a holding company whose subsidiaries provide financial guarantee insurance for the public and structured finance markets.

National Public Finance Guarantee is a wholly owned subsidiary of MBIA Inc. and independently capitalized with $3.8 billion in claims-paying resources as of June 30, 2019.

The Complaint is available here.





[i] "'The legacy of the banks' unjust conduct will affect Puerto Rico for generations. The banks not only disregarded their gatekeeping role but exploited it, leading Puerto Rico straight into its current crisis. While the banks enriched themselves, they caused great damage to the Commonwealth, its people, and National. They should now bear the costs of their inequitable conduct.'"


[ii] "'Defendants through their acts assured National that they were conducting reasonable investigations regarding the terms of the bonds that National insured, and National relied on those acts in issuing its insurance. But Defendants frustrated National's legitimate, good faith expectations by choosing not to conduct those investigations and utterly failing to ensure that they had confirmed the truthfulness and completeness of the integral materials in the insurance applications….These extraordinary circumstances warrant application of doctrina de actos propios and/or the unilateral declaration of will.'"



Cision View original content:http://www.prnewswire.com/news-relea...300898893.html

SOURCE National Public Finance Guarantee Corporation and MBIA Insurance Corporation



https://www.reuters.com/article/usa-...-idUSL2N2541FO
Quote:
Bond insurer MBIA sues banks over defaulted Puerto Rico bonds

Spoiler:
Aug 8 (Reuters) - Bond insurance company MBIA Inc sued several financial institutions on Thursday over their role in underwriting billions of dollars of Puerto Rico bonds that eventually went into default.

The lawsuit filed in superior court in San Juan claimed the banks “inflicted a financial tragedy” on the now-bankrupt U.S. commonwealth by urging it to issue “unsustainable” debt.

“That debt bankrupted the commonwealth and its agencies while the banks enriched themselves through massive fees,” the lawsuit stated.

Puerto Rico filed for bankruptcy in 2017 to restructure about $120 billion of debt and pension obligations.

ADVERTISEMENT


According to the lawsuit, major banks underwrote more than $66 billion of bonds issued between 2001 and 2014 by Puerto Rico and its agencies, earning hundreds of millions of dollars in fees. The defendants are: UBS Financial Services Inc, UBS Securities LLC, Citigroup Global Markets Inc, Goldman Sachs & Co LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co LLC; Merrill Lynch, Pierce, Fenner & Smith Inc; RBC Capital Markets LLC, and Santander Securities LLC.

MBIA argued that these underwriters failed to do their due diligence on Puerto Rico bonds, which led to disclosures that were “materially false or misleading” and upon which its unit, National Public Finance Guarantee Corporation, relied upon when it decided to insure the debt.

A request for comment from J.P. Morgan was not immediately answered. Representatives of the other banks declined to comment on the lawsuit.

National insured more than $11 billion of Puerto Rico debt. Subsequent defaults led the insurer to make as of July 1 over $720 million in claims payments that the lawsuit seeks to recover in damages from the banks.

The same banks were sued by Puerto Rico’s federally created fiscal oversight board in May for allegedly aiding and abetting the island’s “clearly insolvent” government to issue debt.


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  #303  
Old 08-27-2019, 11:02 AM
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https://www.bondbuyer.com/opinion/re...epa-debt-plans
Quote:
Commentary Bond insurer lawsuit exposes fatal flaws in Puerto Rico and PREPA debt plans

Spoiler:
Puerto Rico bond insurers this month filed suit against eight well-known investment banks (UBS, Citi, Goldman Sachs, J.P. Morgan Securities, Morgan Stanley, Merrill Lynch, RBC and Santander) for failing to perform proper diligence on Commonwealth bonds worth approximately $11 billion. The train of neglect ran from 2001 to 2015 and included revenue and expenditure falsification and misleading debt gimmicks. In short, the suit alleges that the Official Statements promoted by the banks were fraudulent.

The lawsuit by MBIA Insurance Corp. and its National Public Finance Guarantee Corp. unit reveals the fatal flaws and conflicts of interest that plague the $8.3 billion PREPA debt restructuring deal that is currently before the bankruptcy court.

The complaint contends that the insurers were victims of the banks’ recklessness. The banks looked the other way as Puerto Rico’s economy declined. They peddled bonds to insurers as sound investments that could be reasonably insured against default. The level of deception was motivated, according to the complaint, by a drive for lucrative fees by the banks as they cynically cast aside bedrock principles of care and concern for the insurers or the people of the Commonwealth.

The ensuing defaults have had tragic consequences for Puerto Rico and its residents, as well as costing the insurers $720 million. The insurers are now seeking damages. If the case is allowed to proceed, its findings regarding the legality of various Commonwealth debt issuances could be more valuable to the people of Puerto Rico than any awards eventually paid by the banks to the bond insurers.

The lawsuit specifically cites eight bond issuances by PREPA totaling $3.7 billion. In addition, in another recently filed action to obtain relief from fraudulent oil purchases, the Puerto Rico Financial Oversight and Management Board (FOMB) made a financial disclosure in which it stated that PREPA was insolvent in 2011, calling into question another $1.3 billion of PREPA debt issued after that time.

The pending PREPA debt restructuring agreement (RSA) before the bankruptcy court covers $8.26 billion of debt, of which the legality of $5 billion now appears questionable. The Commonwealth, former Governor Ricardo Rosselló and the FOMB have all endorsed the deal which would saddle PREPA ratepayers paying with somewhere between 67% and 75% of this debt back to bondholders. In other words, Puerto Rico’s fiscal leaders expect consumers and businesses to pay back between $3.35 and $3.75 billion in debt that may have been issued illegally.

Why is the FOMB agreeing to the repayment of debt that has been called into question? Perhaps because its chief financial advisor on PREPA restructuring, Citi, is a financial advisor to the FOMB. Citi is named in the lawsuit with the bond insurers as an offending bank, and now continues to secure lucrative fees through advising the FOMB. For Citi to advise the FOMB that some of the debt was questionable, would be to admit that the bank’s past due diligence was deficient.

The debt deal also suffers from several other fatal flaws, including: (1) the lack of a clean set of books for PREPA that can serve as a reliable depiction of its actual financial condition, given the FOMB investigation of PREPA’s auditing firm BDO, whose managing partner in Puerto Rico was recently arrested for fraud; (2) the fact that the deal was negotiated on behalf of the Puerto Rican government by Christian Sobrino, who lost his job amidst the recent scandals that led to the collapse of the Rosselló administration; (3) the economic reality that the terms of the deal are unaffordable and will result in debt service costs that will rise faster than the projected growth of Puerto Rico’s economy; and (4) the lack of true-up mechanism in the deal that could result in it being un-ratable or not receiving an investment grade rating.

Several immediate and medium-term steps are required. The Commonwealth and FOMB need to rescind their support for the debt deal and cancel it. The FOMB must step up efforts to determine the level of valid debt actually owed by PREPA, and the new Governor or legislature should reinstate the Commission for the Comprehensive Audit of the Public Credit. The FOMB needs to make public the results of its investigation of the BDO affair, especially given Puerto Rico’s history of suppressing past investigations related to the PREPA oil purchasing scandal,and the Whitefish and Cobra contracts. The Commonwealth and FOMB need to more rigorously oversee the sizable army of financial advisors, law firms, accountants, credit agencies, underwriters and consultants that are fraught with conflicts of interest. And, an Independent Private Sector Inspector General must be set up for PREPA to pro-actively monitor its internal operations and ensure that the rebuilding process is not a repeat of the incompetence and corruption that have plagued the Island’s governmental structure up until present.


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  #304  
Old 09-03-2019, 09:10 PM
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https://twitter.com/JBalmaceda787/st...60694227800064
Quote:
#PuertoRico's PayGo #pension system wraps up fiscal year 2019 w/ $166m debt, according to latest
@AAFAFPR
report. Combined with FY18's $99m debt, PayGo system is more than a quarter billion dollars into the red since it was established in 2017. http://aafaf.pr.gov/assets/paygo-rep...st-15-2019.pdf #muniland
http://www.aafaf.pr.gov/assets/paygo...st-15-2019.pdf
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Old 09-06-2019, 04:01 PM
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https://business.financialpost.com/p...co-pension-law

Quote:
U.S. judge refuses to dismiss lawsuit over Puerto Rico pension law

Spoiler:
SAN JUAN — A lawsuit filed by Puerto Rico’s financial oversight board over a new pension and healthcare funding law will move forward after a federal judge on Thursday denied the U.S. commonwealth’s motion to dismiss the case.

The litigation, which marked the latest skirmish in an ongoing battle between the board and the government over spending priorities, targets a law that transfers hundreds of millions of dollars in municipal pension and healthcare costs to the bankrupt Puerto Rico government.

U.S. District Court Judge Laura Taylor Swain rejected arguments by the island’s government that the lawsuit cites faulty claims based on the 2016 federal PROMESA Act, which created the board and a bankruptcy-like process to restructure about $120 billion of Puerto Rico’s debt and pension obligations.

Swain, who is hearing the island’s bankruptcy cases, ordered the lawsuit to proceed.

A fiscal 2020 budget passed by Puerto Rico lawmakers included funding for local pensions and health insurance costs to aid cash-strapped municipalities despite warnings from the board that so-called Law 29, which enabled the move, is inconsistent with its fiscal plan.

STORY CONTINUES BELOW


The board’s lawsuit seeks to void the law, contending it would impair the PROMESA Act by diverting hundreds of millions of dollars Puerto Rico’s government could otherwise use to spur economic growth.

Law 29, which was enacted in May by then-Governor Ricardo Rossello, will add $311 million in additional government spending in fiscal 2020 and $1.7 billion through fiscal 2024, according to the lawsuit.

The oversight board sued Rossello and Puerto Rico’s fiscal agency in July. Rossello resigned earlier this month in the wake of protests over government corruption and controversial leaked chat messages involving him and close allies. He was eventually replaced by Wanda Vazquez, Puerto Rico’s justice secretary.

Following a meeting last week between Vazquez and a group of island mayors, the new governor vowed she will continue to defend the law’s validity, according to Carlos Molina, president of the Mayors Federation.


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Old 09-13-2019, 04:09 PM
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https://fixedincome.fidelity.com/ftg...ca9a0000_110.1

Quote:
Puerto Rico will lose federal tax credits that support 18% of revenue

Spoiler:
Puerto Rico, already restructuring its billions in bond debt, now needs to look for an alternative to a tax that provided 17.6% of its net revenues in fiscal 2019.

U.S. Treasury Secretary Steve Mnuchin told Gov. Wanda Vázquez that the government would take steps to end the tax credit that supports Puerto Rico’s Act 154 tax on foreign corporations. Passed in 2010, Act 154 is a 4% excise tax on the revenues of foreign corporate subsidiaries based in Puerto Rico.

Act 154 revenues go to Puerto Rico’s General Fund, which will be used to pay general obligation and some other central government bonds, once the current stay on payments is lifted.

While Puerto Rico is part of the U.S., for tax purposes it is considered a foreign land.

In 2011 U.S. Treasury agreed to a tax credit for the Act 154 payments on a temporary basis. The credit has since been extended beyond its original sunset. On Tuesday Mnuchin said that the credit would have to be phased out, though he didn’t specify a deadline.

Observers have worried that the loss of the federal tax credit would lead corporations to remove their operations from Puerto Rico. Many of the “foreign corporations” affected by Act 154 are companies based in the U.S.

According to Puerto Rico, 10 corporations and partnerships paid 90% of all Act 154 taxes in fiscal year 2016. The law mainly affects corporations manufacturing pharmaceuticals and other high-tech products on the island.

Attorney John Mudd said that if Puerto Rico tried to continue the Law 154 tax after the federal tax credit was withdrawn, the subject companies would probably successfully challenge it in court.

There has been talk of substituting an income tax on the subsidiaries for the excise tax. Mudd said this would probably also be legally challenged, but would probably survive any such challenge.

If Puerto Rico were to put an income tax on the subsidiaries, the parent companies would have to pay another tax on the income in their federal taxes. However, under current federal tax law it would be 80% tax deductible.

Under the phase-out plan, the parent companies based in the 50 states with Puerto Rico subsidiaries would have increased tax bills. Under the new tax conditions, some may choose to move the subsidiary operations to other locations.

Vicente Feliciano, president of Advantage Business Consulting, was optimistic. “Puerto Rico needs to come up with a reasonable income tax structure that provides these companies with a competitive tax environment but maintaining the present level of tax revenues. Done carefully and with a transition period, it should not be a major issue.”

The Puerto Rico Oversight Board certified fiscal plan, based on a variety of factors excluding a federal decision to revoke tax credits, projected that Act 154 revenues would decline by 37% from fiscal year 2018 to fiscal year 2024.

Spokespeople for Puerto Rico’s local government didn’t respond to a request to respond to Mnuchin’s comments.


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Old 09-28-2019, 01:05 PM
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https://www.yahoo.com/news/federal-b...132038108.html

Quote:
Federal board files plan to reduce Puerto Rico debt by 60%

Spoiler:
SAN JUAN, Puerto Rico (AP) — A federal control board that oversees Puerto Rico's finances filed in court Friday a long-awaited plan that it says would reduce the U.S. territory's debt by more than 60 percent and pull the island out of bankruptcy in what government officials called a historic moment.

The plan comes three years after U.S. Congress created the board and would reduce $35 billion in liabilities to $12 billion, a move that some believe would help ease Puerto Rico's financial crisis amid a 13-year recession, pave the way to the board's departure and allow Puerto Rico to regain fiscal autonomy.

"Today we have taken a big step to put bankruptcy behind us," said board chairman José Carrión. "Three years after Congress passed PROMESA and two years after the most severe hurricane in more than 100 years hit Puerto Rico, after more than a decade of economic decline and fiscal disarray, after tens of thousands of Puerto Ricans left their island to find prosperity elsewhere, we have now reached a turning point."

Puerto Rico was dragging more than $70 billion in public debt after decades of mismanagement, corruption and excessive borrowing to balance budgets. In June 2015, the government declared the debt unpayable, and in May 2017, Puerto Rico filed for the biggest U.S. municipal bankruptcy in history.

Since then, several multimillion-dollar deals have been reached with creditors holding bonds issued by certain Puerto Rico government agencies. The newest plan targets general obligation bonds and other debt held by the government, and it still has to be approved by a federal judge overseeing a bankruptcy-like process as Puerto Rico still struggles to recover from Hurricane Maria. The island's infrastructure remains weak as evidenced by Puerto Rico's Electric Power Authority announcement late Thursday about selective power cuts given high demand and an overwhelmed power grid that has left tens of thousands without power overnight.

In addition, the fiscal crisis has crippled Puerto Rico's ability to recover from the Category 4 storm that hit in September 2017 because it cannot borrow money since it doesn't have access to capital markets, officials said.

Board members met on Friday to talk about the plan's details, noting that while they expect creditors to fight back, the restructuring is needed.

Natalie Jaresko, the board's executive director, said Puerto Rico's bankruptcy is larger than that of General Motors in 2009 as she praised the aim to reduce the island's debt by 60%.

"Those are huge numbers," she said. "It's a very important day for Puerto Rico."

However, Carrión acknowledged that the plan itself would not lift Puerto Rico's economy or spur economic development.

"It's not a panacea," he said, adding, "Nothing can happen unless we get out of bankruptcy."

If approved, the debt restructuring plan would reduce Puerto Rico's annual debt service to under 9%, down from almost 30% prior to Congress approving a financial package that led to the creation of the board.

The plan also would restructure general obligation bonds and others issued in previous years by Puerto Rico's government, with creditors who hold bonds issued after 2011 facing bigger cuts since that debt has been challenged as unconstitutional.

In addition, the plan would impose an 8.5% in pension cuts for retirees that receive more than $1,200 a month, a move that Puerto Rico's government has opposed. Puerto Rico's public pension system currently faces more than $50 billion in unfunded pension benefits.

The island's previous governor, who resigned in August amid political turmoil, vehemently opposed pension cuts. It was not immediately clear if the new governor, Wanda Vázquez, supports the plan. She was expected to address Puerto Ricans on Friday afternoon.

Meanwhile, Elí Díaz Atienza, the governor's representative to the board, said during Friday's meeting that the government will consider the proposed plan even though it opposes pension cuts.

"We must be pragmatic and realistic," he said, adding that Puerto Rico needs to recover from its protracted economic crisis.


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Old 10-01-2019, 05:39 PM
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https://thehill.com/homenews/state-w...ercent#new_tab
Quote:
Puerto Rico releases new plan to cut debt by 33 percent

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Puerto Rico, owner of the largest United States bankruptcy in history, released a plan to cut its $129 billion debt by 33 percent Friday, according to The New York Times.

The $129 billion figure may not seem like a large number compared to the U.S.'s $22.6 trillion national debt, but Puerto Rico's inability to pay its debts was so dire that Congress passed, in 2016, the Puerto Rico Oversight, Management and Economic Stability Act, a law that essentially gives territories bankruptcy protection.

Created by a federal oversight board, the plan now goes to a federal judge, who will review the fairness and feasibility of the proposal.

The plan, in its current structure, is far from a done deal. Puerto Rico's debt is complex; the U.S. territory has a laundry list of parties that have a stake in the debt. Bondholders, pensioners and current government employees are only a fraction of them.

One of the big proposed cuts would reduce Puerto Rico's bond obligations 45 percent from $75 billion to $41 billion. The huge reduction would mean many bondholders would only get a third or two-thirds of what they're owed, the Times reported.

Puerto Rico also owes $54.5 billion in pension obligations and the proposed cut would lower that number to $45 billion. However, in the process, retirees' pensions could be slashed by as much as 8.5 percent.

Additionally, there are worries that reducing retirees' pensions could affect the island's economic growth, since retirees make up a large percentage of the economy.

If the plan is passed and ends up having the desired consequences, it could become a model for states like Illinois that have considerable debt of their own.

“Sustainability is not a requirement of the law, but we really wanted it to be at the center of everything we did,” the executive director of the oversight board Natalie Jaresko told the Times. “We weren’t going to end up in a situation where 10 years from now, 12 years from now, Puerto Rico would have to restructure again.”

The goal, Jaresko noted, is to reduce Puerto Rico's debt to a level that it could feasibly control.


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Old 10-02-2019, 04:59 PM
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https://wirepoints.org/puerto-rico-r...olvent-states/
Quote:
Puerto Rico Reviving Bankruptcy Debate for Illinois and Other Insolvent States
Spoiler:
When the possibility of Congress authorizing bankruptcy for insolvent states was last discussed a couple years ago, most of Illinois’ media and political establishment either ignored or ridiculed it with words like “dangerous,” “silly,” and “unconstitutional.”

The discussion is returning and this time it will be informed and rational, if Friday’s New York Times article is an indication.

The spark for the new round of discussion is Puerto Rico’s full reorganization plan, recently proposed in its bankruptcy-like proceeding under a federal law called PROMESA, which Congress authorized in 2016.

“If the plan survives the challenges ahead, it could be a model for how struggling states deal with their financial problems in the future,” says the Times, referencing Illinois and New Jersey in particular.

Those in Illinois who scoff at talk of bankruptcy, particularly public pensioners, should read the Times piece with an open mind. They may find much to their liking, especially if they understand the chaotic alternative Illinois faces if it does not find another orderly way to address its rapidly deepening insolvency.

Yes, pensions would be cut under the Puerto Rico plan. As the Times reports, the new restructuring plan would reduce the island’s $54.5 billion pension obligation to $45 billion. However, cuts would be made on a sliding scale. The biggest pensions would be reduced by, at most, 8.5 percent, and the smallest pensions would not be cut at all.

Illinois, too, needs some kind of progressive or means-tested pension reform. Many pensions here are very excessive, but smaller ones need more protection. Federal legislation can permit or even mandate differential treatment.

But bondholders would bear a far bigger burden to give Puerto Rico a fresh start under the plan. It would trim the island’s bond obligations to $41 billion from $75 billion — a 45 percent reduction. That, too, is an average, with cuts to bonds ranging from 64 to 93 cents on the dollar. Others could risk getting nothing at all, according to the Times.

Puerto Rico retirees would also get legal assurances of future funding under the plan. “The result,” according to the Times, “is retirees get a better deal than almost any other creditor group: at least 91.5 cents on the dollar.” Most Illinois pensioner who truly knows our numbers would take that deal and run because, as things stand, one way or another, those with the larger pensions will be lucky to get 60 cents on the dollar in the long run.

In total, Puerto Rico’s plan would cut $129 billion in debts to about $86 billion — a reduction of 33 percent, NYT calculates.

How did they conclude that was the right amount? That is, how did they balance the need for debt reduction against the need to maintain competitive levels of taxation and services while still giving the island a fresh start?

On that, the federally-appointed oversight board, which proposed the plan, took a sensible approach. From the Times article:

First, the board looked at the debt burdens of America’s 10 most indebted states, calculated the average, and pared back Puerto Rico’s debt to an amount less than that. Then it began pushing for changes meant to make the government perform more efficiently, rebuild the public trust and encourage businesses to grow and hire.

Could Congress pass legislation for states comparable to PROMESA for Puerto Rico? There’s no constitutional obstacle, notwithstanding claims to the contrary by some opponents. “The constitutionality of bankruptcy-for-states is beyond serious dispute, according to David Skeel, a law professor at the University of Pennsylvania and member of Puerto Rico’s oversight board. The key is that bankruptcy would be entirely voluntary for any state, which eliminates any concerns about federal intrusion on state sovereignty.

Would Congress ever do so? In 2017, there was enough interest in Congress to prompt then-Governor Bruce Rauner to predict that such legislation would be passed that year. He obviously overestimated Congressional interest in the subject, and interest further abated in 2018 when Democrats, who are more opposed to the idea, took control of the House.

However, action is probably just a matter of time. It would likely take a state controlled by Democrats telling Washington it needs bankruptcy-for-states. Illinois and New Jersey may be the worst off, but Connecticut, Massachusetts, California and Kentucky are not far behind.

The real fight would then about what form bankruptcy-for-states would take. It needn’t be identical to PROMESA nor similar to Chapter 9 of the federal Bankruptcy Code, which is for municipalities but not states. Issues about priorities among bondholders, pensioners and other creditors, as well as many other matters, could be addressed by Congress in its legislation.

If you still think the concept of bankruptcy-for-states is far-fetched, be aware that those with the most financial expertise and skin in the game think otherwise. That’s the municipal bond industry. They saw the risk to their wallets back in 2016. Knowing that PROMESA could set a precedent that would jeopardize outstanding bonds, they fought hard to defeat it in Congress and ran a national ad campaign in opposition.

The author of the New York Times piece, interestingly, is Mary Williams Walsh, who has long been following state financial and pension issues in Illinois and elsewhere. You may recall her 2015 article, “Bad Math and a Coming Public Pension Crisis,” about the efforts of Jim Palermo and others here in Illinois to expose the work of an actuary for many Illinois pensions, Timothy W. Sharpe. That work, and probably her article, resulted in Sharpe’s suspension by the American Academy of Actuaries from membership for two years.

When we wrote about bankruptcy-for-states in 2017 we quoted Arthur Schopenhauer: “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

Hopefully, we’ve now at least passed through that first stage.

That’s not to say we endorse bankruptcy for Illinois or any other state. It would depend on the specifics and the details of the legislation. It would also depend on whether Illinois pursues the drastic reforms it needs in some other manner. However, the only alternative that would allow for real pension reform in Illinois is an amendment to our constitutional pension protection clause, which our political establishment has ruled out. And if equity requires sacrifices from other creditors, only bankruptcy can do it.

*Mark Glennon is founder of Wirepoints.
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Old 10-02-2019, 05:13 PM
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https://fixedincome.fidelity.com/ftg...32d10000_110.1
Quote:
Puerto Rico governor supports board plan of adjustment

Spoiler:
Gov. Wanda Vázquez García said over the weekend she supports the Puerto Rico Oversight Board’s plan of adjustment, removing an obstacle to the restructuring of the commonwealth's debt.

By supporting an adjustment plan that includes a reduction to pensions, she walked a different path than the one former Gov. Ricardo Rosselló said he’d have taken. Rosselló had said he would oppose any plan that cut pensions. Vázquez García was sworn in as governor on Aug. 7, five days after Rosselló resigned the office.

On Friday the board announced the plan, which would cut $35 billion in commonwealth, Public Building Authority, and Employees Retirement System debt to $12 billion in debt. It also cut the more than $50 billion owed to retirees in three pension systems, albeit by a much smaller percent.

“The governor’s approval is a strong positive for the plan,” said Matt Fabian, partner at Municipal Market Analytics. “Up until now, the board has not only faced an uncertainty over future economic and financial performance, but also over how, and how quickly, the Puerto Rico governments will attempt to undermine the board’s efforts.”

Chapman Strategic Advisors Managing Director James Spiotto said if the governor had opposed the plan, it would have posed a significant problem. Her endorsement may engender some public employee and legislator support, he added.

For her part Vázquez García said, “The decision we have to take today is reduced to the following: we respect the agreement reached by Retired Committee with the Financial Oversight and Management Board, which reduces pensions up to 8.5% or we risk facing greater cuts of up to 25% in pensions.” She said she couldn’t risk the deeper cut.

“My only interest has been to make an objective and careful analysis of what are really the best interests of pensioners in Puerto Rico,” Vázquez García said. “We cannot remain stuck in bankruptcy for many more years and like you, I want the Financial Oversight and Management Board to finish its work as soon as possible.”

Evercore Director of Municipal Research Howard Cure said, “This is the first time that I can recall that the commonwealth has been willing to undergo any haircut for its pension system. We will see if there is popular and political support for this.”

“The current governor’s effectively aligning herself with the board’s plan will practically beg the opposition party to run a campaign directly against the board’s plan, maybe creating more havoc for projections than otherwise,” Fabian said.

A board spokesman said that the pensioners, as members of the Committee of Retirees, will be voting on the plan. A spokesman for the Committee of Retirees confirmed this.

Spiotto said some bondholders may object to the process that the court is overseeing: first, accepting adversary proceedings challenging the board’s plan to treat late-issued debt differently from early-issued debt; second, freezing their challenge and telling them to handle it in a slow-moving mediation process; and third, allowing the board to file a plan including the disparate treatment of bonds during the mediation period.

Spiotto said there is a question whether it was legal to let a plan to be submitted and considered without first resolving adversary proceedings that challenge parts of it.

The board had submitted the plan partly as a way to pressure bondholders. The plan is the board’s statement of what will happen if no deal is reached, Spiotto said. If a deal is reached, the plan would be changed.
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