PUERTO RICO’s REESTRUCTURE CONTINUED

 

Today in the afternoon, El Vocero reports that Ms. Ingrid Vila, Governance Secretary of Puerto Rico stated that restructuring of the Puerto Rico and its public corporations will not be restructured for the time being. This statement begs the question of how will PREPA pay for its fuel when all politicians have stated they will not allow a rate increase. Or its debts, for that matter. Also, why hire Cleary Gottlieb, Proskauer Rose LLP for $1.3 millions each? The GDB also hired Millco Advisors, LP, subsidiary of Millstein & Co. LP for $500,000. All these contracts expired on March 31, 2014 and have not been renewed. Also, PR hired, to the tune of $600,000, the investor relations firm of Sard Verbinnen.  FTI Consulting was also hired.

 

Almost as bad is the Treasury Secretary Melba Acosta, who happens to be an attorney, being quoted in the newspaper that the Government of Puerto Rico had to honor all its debts according to the Constitution. This is patently false. The PR Constitution Article II, secs. 2, 6, and 8 require payment of the general obligation bonds and provides bondholders a cause of action against the Treasury Secretary for payment before any other creditor. My calculations indicate general obligations to be only $19.733 billion. Public corporations and municipalities owe around $31 billion, leaving about $23 billion as PR government debt that is NOT constitutionally protected. Think COFINA and COFIM. These funds are protected by a lien, true, but the PR Supreme Court in, Asociación de Maestros de PR, et als, v. Sistema de Retiro de Maestros de PR and Trinidad v. ELA, 2013 TSPR 73 and the First Circuit Court of Appeals in United Auto., Aerospace, Agr. Implement Workers of America Intern. Union v. Fortuño, 633 F.3d 37 (1st Cir. 2011) have determined that the Government may impair governmental obligations can be modified by the enactment of a law, during a clear and defined crisis and the law has to resolve or greatly ameliorate said crisis. In other words, if PR is an a crisis it may change the lien guaranteeing COFINA etc. and the bonds would not have constitutional protection. Timeo Danaos et dona ferentes (I fear the Greeks even when they bear gifts) Aeneid (II, 49).

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s