On March 22, 2017, the Subcommittee on Indian, Insular and Alaska Native Affairs of the U.S. House of Representatives Committee on Natural Resources held a hearing on the status of the Puerto Rico Electric Power Authority (PREPA) Restructuring Support Agreement (RSA).
Subcommittee Chair Doug LaMalfa (R-CA) convened the hearing by reminding all parties of looming deadlines:
- 1) If a new agreement is not reached, PREPA will run out of money in May, and
- 2) PREPA has a major bond payment of roughly $455 million due on July 1.
The nearly three hour hearing included two panels. The first panel, which consumed the bulk of the hearing, included Puerto Rico Governor Ricardo Rosselló accompanied by Gerardo Portela-Franco, the executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority. The second panel was made up of six witnesses that included members of the Puerto Rico Financial Oversight and Management Board that was created through the enactment of PROMESA along with representatives for some of the territory’s creditors:
- José B. Carrión III – Chairman, Financial Oversight and Management Board of Puerto Rico
- Ana J. Matosantos – Member, Financial Oversight and Management Board of Puerto Rico
- Luis Benítez Hernández – Chairman, PREPA Governing Board
- Stephen Spencer – Managing Director, Houlihan Lokey (on behalf of Franklin Advisers, Inc. and Oppenheimer Funds Inc.)
- Adam Bergonzi – Managing Director & Chief Risk Officer, National Public Finance Guarantee Corporation
- Rob Bryngelson – President & CEO, Excelerate Energy L.P.
The current RSA, which expires on March 31, was initially negotiated in November 2015 and has been extended on more than a dozen occasions. Governor Rosselló, who assumed office on January 2, 2017, expressed his commitment to working with PREPA bondholders on a new agreement, but he also explained to members of the subcommittee that his administration is not willing to merely “rubber stamp” an RSA that was negotiated by the previous administration. Rosselló’s administration has released proposed amendments to the RSA. While keenly aware of the upcoming deadlines, the governor emphasized the need to find a solution that is sustainable and will not lead to further restructuring of PREPA’s debt.
Throughout the hearing, the governor and the oversight board members were optimistic regarding the potential to strike a voluntary deal through direct negotiations with creditors. Their optimism was not shared by representatives for PREPA’s creditors, and it remains to be seen if a deal will be struck ahead of the March 31 deadline. What is clear from the hearing is that there is substantially more work to be done in order to get Puerto Rico’s fiscal house back in order.
With first-hand knowledge of the dire situation in Puerto Rico, Resident Commissioner Jenniffer González Colón, vice chair of the subcommittee and Puerto Rico’s sole representative in Congress, spoke more broadly about the situation, and reminded her colleagues that Puerto Rico will soon face a healthcare crisis when Medicaid funding is exhausted at the end of the year. She urged her colleagues to use the recommendations in the report issued by the bipartisan Congressional Task Force on Economic Growth in Puerto Rico at the end of 2016 as a roadmap to enact further legislation to assist Puerto Rico.
González Colón explained that the root cause of these issues and the continued need for Congressional action on behalf of Puerto Rico is tied directly to its territorial status. According to the Resident Commissioner, failure to address Puerto Rico’s status is akin to treating the individual symptoms of a very sick patient without treating the underlying disease. Puerto Rico has enacted legislation that calls for a status plebiscite vote on June 11, 2017. This vote will provide Congress with the much needed opportunity to treat the underlying disease. Otherwise, more and more “symptoms” will continue to plague the Congressional agenda.