Over 50 organizations from Puerto Rico and the Diaspora Reject FOMB Debt Restructuring Agreement and Demand Action from Congress

Posted on February 13, 2020 by lsilver

For Immediate Release:
February 13, 2020

Media Contact:
Inarú Meléndez, 413-331-9530, imelendez@populardemocracy.org

“Now is the time for Congress to step up and put the lives of the people of Puerto Rico over hedge fund profits.”

San Juan, Puerto Rico – In response to the new debt adjustment deal announced by the Financial Management and Oversight Board (FOMB) on February 9, over 50 organizations that work in support of Puerto Rico’s people have released a letter demanding that Congress use its oversight powers over the FOMB to stop the agreement immediately and pass legislation that would call for a full independent audit and a cancellation of the island’s $72B public debt.

The signers express concern that the deal: (1) would likely force another bankruptcy process in a few years; (2) is predicated on paying debt that the Board acknowledges was acquired illegally, and which would benefit hedge funds at the expense of the Puerto Rican people; (3) would cut vital pensions and burden Puerto Ricans with unsustainable, regressive sales taxes, further burdening Puerto Rico’s people.

Organizations that have signed on to the letter include: the Center for Popular Democracy, VAMOS4PR, SEIU 32BJ, Power 4 Puerto Rico, Boricuas Unidos en la Diáspora, Make the Road New York, CASA, Taller Salud and Colectiva Feminista en Construcción.

Under the PROMESA law passed in 2016, Congress has ultimate oversight over the FOMB. The groups are asking Congress to use its oversight powers to halt the agreement, call for a full independent audit and cancel the island’s public debt.

 

FULL LETTER BELOW:

Dear Members of Congress,

We write to you as groups in Puerto Rico and the Puerto Rican diaspora concerned with the impact the latest Plan Support Agreement (PSA) of the Fiscal Oversight Management Board (FOMB) and bondholders will have on Puerto Rico. We believe this agreement is a bailout for Wall Street hedge funds that puts a heavy burden on the people of Puerto Rico and will inevitably lead to a second bankruptcy. We therefore request that Congress use its oversight powers over the FOMB to stop this agreement immediately and to pass the “U.S. Territorial Relief Act (H.R. 2526 / S. 1312) legislation that moves forward with a full independent audit and debt cancellation.

Background on the Deal

The PSA published by the Board on February 9, 2020 is a modification to the PSA reached with a group of bondholders in June 2019, and which was included in the Consolidated Plan of Adjustment published on September 27, 2019. This restructuring deal was brokered in backroom negotiations exclusively between the FOMB and a coalition of hedge funds that bought huge stakes in Puerto Rico's general obligation and revenue bonds in the aftermath of Hurricane María at a steep discount.

The deal doesn't just modify bonds held by this hedge fund coalition, however. Parties who were excluded from the negotiations were essentially zeroed out. Public sector workers and retirees with legal claims against the Government, locally-owned small and midsize private sector contractors and government vendors with billions in past due accounts receivable, and plaintiffs in civil rights violation suits who have been awarded judgments entered against the Government, are among the hardest-hit creditors affected by this deal.

The FOMB’s contention that they achieved a 70% cut to the debt is grossly misleading. Our analysis points to cuts to bondholders averaging 27%, with an undue burden to Puerto Rico's taxpayers and local economy over the life of these unsustainable bonds. A 73% recovery for hedge funds who bought discounted bonds in the aftermath of Hurricane María would mean profit margins above 250%, while local business and working families face cuts and losses exceeding 98%. The publicized 70% overall debt haircut is weighted by unfair cuts to Puerto Rico, and ultimately hides a massive windfall for Wall Street.

Concerns about the Deal

The impact of the agreement cannot be overstated. The PSA, if implemented, would have long-lasting, detrimental effects on the people of Puerto Rico. In our initial analysis, we have identified significant concerns we believe should lead Congress to stop this PSA on its tracks.

     1. This PSA Would Lead to Another Bankruptcy.

Experts agree that to make debt sustainable, a minimum cut to bondholders should be 85%. Otherwise, Puerto Rico will be forced back into bankruptcy in the near term. Bondholders are aware of this and managed to protect half of their bonds against a second bankruptcy, converting 50% of their bonds into COFINA bonds. GO bonds are not secured, but payments on COFINA bonds are secured for a minimum of 40 years with the highest sales tax of any US jurisdiction, and the FOMB secured legislation that waived the right of future administrations to restructure COFINA bonds in the of a second insolvency event and subsequent bankruptcy proceeding.

     2. The PSA Is Predicated on Payment of Illegal Debt and Would Be a Windfall for Predatory Hedge Funds at the Expense of the Puerto Rican People.

The FOMB had stated that General Obligation (GO) bonds brought to market starting in 2012 had exceeded Puerto Rico’s debt limit and would have to be voided. In a previous deal, the FOMB had offered holders of pre-2012 bonds 64 cents on the dollar, and those holding 2012-2014 bonds 35-45 cents on the dollar.  The current deal increases recoveries across the board for holders of this illegal debt, to 74.9 cents and 69.9 cents respectively.  

This means that hedge funds that bought this illegal debt for cents on the dollar are positioned to make a killing on their predatory investments while the people of Puerto Rico, still reeling from hurricane Maria and ongoing earthquakes, are going to continue to face austerity measures and crippling sales taxes for decades to come.

     3. This PSA Would Cut Pensions and Burden Puerto Ricans with Unsustainable Sales Taxes.

This agreement puts the burden of the debt on the backs of Puerto Rico’s most vulnerable residents. The agreement piggybacks on a proposed 8.5% cut to pensions, while guaranteeing wealthy hedge funds holding illegal debt returns of 250% or more on their predatory investments. Part of this deal would guarantee hedge funds money through the exorbitant sales tax imposed on Puerto Ricans, which is currently 11.5%. 

Congressional Action

For the aforementioned reasons, we request that Congress:

  1. Use its oversight power over the FOMB to stop this agreement immediately.

  2. Move forward with an investigation on conflicts of interest and corporate influences that might have led to this debt deal.

  3. Pass The United States Territorial Relief Act of 2019 (S.1312, H.R. 2526): legislation that moves forward with a full independent audit and partial debt cancellation for Puerto Rico.

Now is the time for Congress to step up and put the lives of the people of Puerto Rico over hedge fund profits. 
 

Signed,

  1. Action Center on Race and the Economy (ACRE)

  2. Action NC

  3. Alianza Americas

  4. Alianza

  5. Alianza por Puerto Rico-Massachusetts

  6. Ayuda Legal Puerto Rico

  7. Boricuas Unidos en la Diáspora 

  8. Borisquad

  9. CASA

  10. Cancel the Debt Collective

  11. CPD Action

  12. Central Florida Jobs with Justice

  13. Centro Para Una Nueva Gobernanza

  14. Chelsea Rising/LEAPS

  15. Churches United For Fair Housing (CUFFH)

  16. Collective Action for Puerto Rico

  17. Colectiva Feminista en Construcción

  18. Comunidad Bohique

  19. Comunidades Organizando el Poder y la Acción Latina (COPAL)

  20. Construyamos Otro Acuerdo

  21. CT Working Families Party

  22. Diáspora en Acción

  23. Diáspora en Resistencia

  24. Federación de Maestros de Puerto Rico

  25. Florida Student Power Network 

  26. Frente Ciudadano Por La Auditoría de La Deuda

  27. Harvard Puerto Rico Divestment Campaign

  28. Hedge Clippers

  29. IDEBAJO

  30. LatinoJustice PRLDEF

  31. Make the Road CT

  32. Make the Road PA

  33. Make the Road NJ 

  34. Make the Road NY

  35. Make the Road NV

  36. Massachusetts Jobs with Justice

  37. Mujeres de Islas

  38. National Puerto Rican Agenda

  39. New York Communities for Change - NYCC

  40. Organize Florida

  41. Our Revolution

  42. Pa'lante por Mas of Organize Florida

  43. Parranda Puerto Rico

  44. Poder Latinx

  45. Power 4 Puerto Rico 

  46. Presente.org

  47. Public Accountability Initiative

  48. Puerto Ricans Flags Up

  49. Refund America Project

  50. Respect and Justice for Puerto Rico

  51. Rights & Democracy

  52. SEIU 32BJ

  53. SEIU HCII

  54. SEIU Local 1

  55. SEIU USWW

  56. Strong Economy For All Coalition

  57. Taller Salud

  58. VAMOS

  59. Vamos4PR

  60. Working Families Party

###

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