Puerto Rico to Redraw Plan for Ending Debt Crisis Due to Storm

  • U.S. board also to approve contracts following Whitefish pact
  • Puerto Rico debt has tumbled on speculation of deeper losses
A resident rides a bicycle in front of stores damaged from Hurricane Maria on a muddy road in Barranquitas, Puerto Rico, on Oct. 18. Photographer: Xavier Garcia/Bloomberg

Puerto Rico’s federal oversight board has given the island about seven weeks to revise its financial recovery plan to account for the devastating damage suffered in Hurricane Maria, raising the possibility the territory will need to impose deeper losses on owners of its $74 billion debt.

The panel on Tuesday also said that Puerto Rico will need to seek approval for any contract over $10 million, significantly expanding its supervision. The step came after widespread scrutiny of the Puerto Rico Electric Power Authority’s decision to grant a crucial $300 million rebuilding contact to Whitefish Energy Holdings LLC, a tiny Montana company that had just two full-time employees before beginning its work in Puerto Rico.

The hurricane that struck in September exacerbated the crisis that was already gripping Puerto Rico since it defaulted on its debt and collapsed into bankruptcy.

With the storm causing as much as $95 billion of damage, Puerto Rico bonds have tumbled on speculation that investors will be forced to accept even steeper concessions than previously anticipated. The island’s main operational account -- which receives most of its public funds and covers most of its expenses -- is set to be $2.4 billion short by the end of 2017, in part because of the toll on the government’s tax collections, according to Puerto Rico’s fiscal agency.

“The devastation has affected millions of lives, decimated critical infrastructure, made revenue collections almost impossible,” Natalie Jaresko, the panel’s executive director, said Tuesday during the first public meeting of the board since the hurricane. “In light of this new reality, we must work urgently towards revising the certified fiscal plans.”

The commonwealth, the Puerto Rico Aqueduct and Sewer Authority and Prepa, as the power utility is known, must submit to the federal board their updated fiscal plans by Dec. 22, she said.

Puerto Rico has been operating in bankruptcy since May after failing to reach restructuring deals with creditors. It is the largest municipal bankruptcy and may take years to resolve.

An index of commonwealth debt has lost 16.7 percent this year, the biggest decline since at least 2000, according to S&P Dow Jones Indices. Puerto Rico general obligations with an 8 percent coupon and maturing in 2035, the island’s most actively-traded security, changed hands Tuesday at an average of 29.9 cents on the dollar, down from 56.7 cents before Hurricane Maria.

The commonwealth’s fiscal plan, which the federal board approved in March, allocated $8 billion for debt payments between now and 2026, far short of the $33.4 billion that’s owed. Given the storm, analysts anticipate that Puerto Rico may not be able to repay the $8 billion over that time.

The federal board will certify or recommend additional changes to the revised fiscal plans by Jan. 12, Jaresko said. The University of Puerto Rico, the highway authority and the government development bank must submit their revised fiscal plans to the panel by Feb. 9.

Jaresko recommended those plans should cover five years of anticipated expenses and revenue, rather than the 10-year time frame in the existing ones. The revisions need to take into account the anticipated population loss because of Maria, with Hunter College’s Center for Puerto Rican Studies estimating that Puerto Rico will lose 14 percent of its population by 2019 because of the storm.

“This is an issue of acknowledging that we need to provide services, but we need to provide them only for the population that remains on the island,” Jaresko said.

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