WASHINGTON, USA -- On Monday, creditors and insurers representing approximately $12 billion of bonds issued by Puerto Rico and its instrumentalities sent a joint letter to members of the Federal Oversight Board created by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) outlining violations of the law in the fiscal plan for Puerto Rico that was certified by the board on March 13, 2017.
The signers of the letter represent thousands of investors in municipal debt across the United States, many of whom are the very same investors that will be called upon to lend money to Puerto Rico in the future. The letter from these investors outlines specific concerns and questions the signers have relating to the fiscal plan for Puerto Rico.
The signers of the letter have again made clear their willingness to engage the Puerto Rico government and the oversight board in a consensual process. Indeed, they have made many previous attempts to do so.
The letter specifically outlines how the fiscal plan certified by the board violates PROMESA along with its other shortcomings, including:
• The plan fails to comply with lawful priorities as established by Puerto Rico's constitution and required by PROMESA.
• The plan does not differentiate between expenses for essential services and expenses for non-essential services and, in fact, prioritizes all non-debt expenses above debt service.
• The plan contains rampant expense growth and assumes that Puerto Rico will not adhere to its own budget by requesting a $600 million annual "cushion" to pay for non-budgeted expenses.
• The plan contains certain omissions, unexplained numbers and assumptions including those related to tax collection rates and macro-economic assumptions.
• The plan undermines investor confidence in Puerto Rico, making it very unlikely that the Commonwealth will be able to access the capital markets any time soon.
The signers of the letter asked for the opportunity to immediately discuss these issues with the Oversight Board and Puerto Rico, with the expressed goal of advancing negotiations and achieving a consensual resolution under Title VI of PROMESA.