Garcia Padilla’s administration presents bill for the Debt Compliance and Recovery of Public Corporations Law
June 25, 2014 - La Fortaleza – The Governor of Puerto Rico, Alejandro J. García Padilla, together with the Chairman of the Board of the Governmental Development Bank (GDB) David H. Chafey, and Treasury Secretary Melba Acosta Febo, announced the introduction of a bill to create a legal frame to help public corporations overcome their financial difficulties through a well-organized statutory process.
The administration bill calls for the creation a “Debt Compliance and Recovery of Public Corporations Law”. It will allow government corporations to deal in a fair and equitable way with their debts, while guaranteeing the continuity of essential public services and the renovation of their infrastructure.
“Federal law provides us with a legal structure that allows private companies and municipal entities in the United States to restructure in order to deal with their financial challenges without disrupting their services. However, public corporations in Puerto Rico that provide public services are not covered by those laws. That’s the reason for the creation of the Debt Compliance and Recovery of Public Corporations Law, to provide a legal basis that allows them to attend their financial difficulties without putting at risk the essential services they provide. It’s important to make clear this law does not include the debt of the Commonwealth or other governmental entities expressly excluded in the bill”, said the Governor.
The proposed bill creates an organized process for a public corporation to achieve financial self-sufficiency with the goal of guaranteeing its ability to provide essential services for the people of Puerto Rico on a continuous, long-term basis. It provides two possible mechanisms to achieve a successful financial adjustment of the corporation’s debts. Both are designed to guarantee a fair and equitable treatment for all concerned parties, as well as a constant level of service for consumers.
The Treasury Secretary said Chapter 2 specifically provides a voluntary mechanism designed to give public corporations back their solvency and credit capacity through the postponement or reduction of their debt service with the consent of a super-majority of their creditors in the context of a recovery plan approved by all parties. If the voluntary mechanism does not succeed, Chapter 3 provides for a judicial solution.
“The main purpose of the bill is to protect the interests of the people of Puerto Rico and to make sure the vacuum in federal laws does not put at risk essential public services. It also aims to protect General Obligation Debts (GOs) and other related credits, such as COFINA. This will be possible thanks to the fact that some public corporations will have the opportunity to deal with their financial challenges once and for all, thus freeing the General Fund. In this way we also protect the interests of every concerned party, because public corporations will have a mechanism to negotiate with their creditors, allowing a fair and equitable distribution of resources and creating a better future for their businesses”, said Acosta Febo.
As the bill makes clear, not all public corporations will be eligible for this law. Expressly excluded are the Commonwealth of Puerto Rico; the 78 municipalities; the GDB and its subsidiaries, affiliates and related entities; the Children’s Trust, the Retirement Systems Administration, the Judiciary Retirement System, the Municipal Financing Agency, the Municipal Financing Corporation, the Industrial Development Company, the Authority for the Financing of Industrial, Touristic, Educative, Medical, and Environmental Control Facilities (AFICA for its Spanish acronym), the Authority for the Financing of the Infrastructure (AFI), the Sales Tax Financing Corporation (COFINA), the Teachers’ Retirement System and the University of Puerto Rico.
Those governmental entities that were not excluded will be eligible only if, at the time they ask for the protection, they are unable to pay valid debts due, without the help of additional legislative action or without additional financial help from the Commonwealth or the GDB, while they continue operating.
“During the past year, the GDB has repeatedly stated that the public debt of the Commonwealth should not be seen as the total sum of debts of a single debtor, but rather as individual credits backed by different income and tax sources, with specific priorities established by law or contract. Moreover, the GDB has been consistent in its message to the markets that neither the Commonwealth nor the GDB are in a position to subsidize or bail out public corporations, and that these must be self-sufficient. We will continue backing the efforts of public corporations to become self-sufficient. However, in light of the present challenges, should public corporations fail to comply with their obligations in a way that allowed creditors to exercise their remedies in a disorganized, unsystematic manner, the absence of an organized process would threaten the ability of the government of Puerto Rico to protect the public and promote the general well-being of the people. For these reasons, the Recovery Law is urgently needed”, said Chafey.
“Since January 2013, this Administration has put into effect in a fast, determined and unprecedented way multiple initiatives to stabilize Puerto Rico’s fiscal situation; promote economic growth and protect and strengthen the credit of the Commonwealth. We are going to have a balanced budget for fiscal year 2014-2015 that will eliminate a recurring deficit that soared to $2.213 billion in January 2013. We approved the most comprehensive reform for the Government’s Workers Retirement System as well as important measures to strengthen the operations of public corporations in Puerto Rico”, said the Governor.
“This Administration continues to show it is ready to take difficult and necessary decisions to ensure the sustainability of the government of Puerto Rico on a long-term basis. This bill has nothing to do with the general obligations of the Commonwealth. We will continue honoring our long-established record of complying with our obligations to our creditors. That will stay intact. The law we propose today forbids its use for restructuring the debt of the Commonwealth. We are focused on giving Puerto Rico back its economic growth and we will never give up on that effort”, said García Padilla.
