In the Meantime, Puerto Rico Perishes

“ubi solitudinem faciunt, pacem appellant” Tacitus (they make desolation and call it peace)

 

Puerto Rico is in dire straits. It is in its 8th year of recession. April’s tax receivables were $400 million+ under what the present administration projected and even with a good May it is still over $320 in the red for THIS fiscal year. Rumor has it that it is really $1 billion.  Hacienda has resorted to declaring Doral’s closing agreement null and begging foreign corporations to prepay its future taxes.

In any rational administration, this tax shortfall would force a reexamination of the 2014-15 budget but we have not seen any. Sources tell me that it will be hammered out next week. How? We don’t know although impairing union contracts seems the order of the day. PC 1922 did that and much more and was approved by the House yesterday in a lighting session with only 5 minutes for opposition debate. Previously, the administration had come to impairment agreements with the Government union leadership, agreements which have yet to be ratified by its members. Since they lack the legal right to strike, it is unlikely the agreements will be rejected.

That leaves the unions of the Government’s public corporations, which have the right to strike. One of PREPA’s unions has agreed to strike and the leadership of the powerful UTIER, largest of the unions has called for a meeting June 17 to discuss striking and yesterday proceeded to a 24 hour work stoppage. Add to this the latest downgrade by Fitch. Analysts believe it will go down to B. Add to this that PREPA has admitted it cannot comply by 2015 with the EPA’s mercury emissions requirement to say nothing of the new green house emissions requirements. Not good news for PREPA.

With $70+ billion in debt, PR needs to restructure. From February to March 31, PR hired Cleary Gottlieb and Proskauer Rose LLP for $1.3 millions each. The GDB also hired Millco Advisors, LP, subsidiary of Millstein & Co. LP for $500,000. Then, from April 11 or April 15, it rehired them until June 30 for $500,000 for the first two and $1.4 million for Millco. But, Ingrid Vila, Secretary of the Governorship insists there will be no restructuring for now and that these companies are hired to advice how to prevent restructuring. Anyone believe it? Because if you do, I have a little bridge in Brooklyn I can sell you. Even with all this, this administration is seriously considering a $2 billion bond issue from COFINA and COFIM. Some analysts have said they don’t see the numbers but I am sure the administration does not much care as long as it can limp into the 2016 election without mayor changes.

The future is really bleak when your best hope is a new administration in 2017 and the opposition party has not come up with any plan or idea on how to face the present crisis and is more worried about who will be the candidate. In the meantime, Puerto Rico perishes.

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