December 21, 2017

USA: Bankrupt Puerto Rico Gives Out $100 Million In Bonuses To Island Government Employees After Pleading The Federal Government For $94 Billion In Hurricane Relief.

Bloomberg News
written by Rebecca Spalding and Jonathan Levin
Monday December 20, 2017

Puerto Rico’s bankruptcy and the crippling blow of Hurricane Maria won’t deprive the government’s employees of their Christmas bonuses.

Governor Ricardo Rossello said Monday that he would cover the payments, despite the financial strains that have been made even more severe since the September storm that caused much of the economy to grind to a halt. Both the government and businesses are required to pay such bonuses under a decades-old Puerto Rican law, providing a year-end boost that workers have come to rely upon.

“Our public employees have done an admirable job for the recovery of the island,” Rossello said in a statement. "Without them the job would be impossible, and we should make good on their Christmas bonus on time.”

The total bonus payments to employees and the retirees will be about $113 million and are already included in the government’s budget, according to an email from Rossello’s spokeswoman, Yennifer Alvarez. She said the average bonus for 105,000 employees will be about $600 each, and 141,000 retirees will be paid about $200 each.

The bonuses became a source of conflict between Rossello and the island’s federal oversight board earlier this year, when the panel pressed the governor to end the practice if he couldn’t cut spending elsewhere to cover the cost. When the governor ignored the recommendation, the board sued, only to withdraw the suit after the hurricane so that legal fighting wouldn’t distract from recovery efforts.

That storm has aggravated the crisis that tipped Puerto Rico into a record-setting bankruptcy this year. With its electricity grid devastated and tax collections drying up, Rossello asked the federal government for $94 billion in aid. A lawyer for the oversight board has said Puerto Rico -- already in default on a growing share of its $74 billion of debt -- may need to suspend bond payments for five years.
The Washington Times
written by Stephen Dinan
Sunday December 3, 2017

Puerto Rico Gov. Ricardo Rossello Nevares last month asked federal taxpayers to shell out $94 billion to pay for the territory’s recovery from Hurricane Maria — then turned around and paid out about $100 million in Christmas bonuses to island government employees.

The governor’s aides say the bonuses are a longstanding tradition and part of the law, and were planned for in the budget approved last summer.

But that budget came well before Hurricanes Irma and Maria slammed into Puerto Rico, leaving much of the territory in ruin and leaving the government begging for federal assistance.

The island’s financial oversight board, created by Congress as part of a deal to bail the government out of a potential debt default last year, called the payments “imprudent” and said the hurricanes should have forced the governor to rethink his decisions.

And the payments could dent Mr. Rossello Nevares’ efforts to get Capitol Hill to pony up for the recovery, where the $94 billion price tag the island has set is already meeting with shock.

“Puerto Rico has demonstrated time and time again that its government is incapable of responsibly handling its finances. This is yet another such instance,” Rep. Tom McClintock, who sits on the House committee with oversight over Puerto Rico, told The Washington Times in a statement after the bonuses were revealed.
Bloomberg News
written by Steven Church
Wednesday December 20, 2017

Puerto Rico must keep paying pension bondholders while the judge overseeing the island’s bankruptcy case decides whether the investors also have a right to retirement contributions made to government workers.

Puerto Rico, which has about $3 billion of pension bonds outstanding, owes about $13.9 million each month in interest to holders of the debt. It’s one of the few commonwealth securities that’s paying interest to investors.

The commonwealth sold the bonds in 2008 to help boost funding levels for its [government employee (emphasis mine)]retirement system. That program is the worst-funded among U.S. states and territories, according to Moody’s Investors Service, and running out of cash. Its unfunded pension liability is approaching $50 billion. Bondholders include affiliates of Oaktree Capital Management LP, Altair Global Credit Opportunities Fund and Puerto Rico AAA Portfolio Bond Fund Inc.

Pension bonds maturing in 2038 traded Wednesday at an average price of 25.5 cents on the dollar, down from 38.1 cents on Sept. 18. Hurricane Maria struck the island on Sept. 20.

Pension bondholders claim they are entitled to so-called adequate protection payments because they have a lien on any contributions made by government agencies to their worker’s retirement system. The commonwealth disputes the bondholder claim, saying pension bondholders are trying seize money that should go to retirees.

While U.S. District Court Judge Laura Taylor Swain decides what rights bondholders may have to past and future retirement contributions, the government must keep paying the creditors. The amount of the regular payments will be based on interest due the holders, she said.

Other creditors, like general obligation bondholders, are not receiving any payments because they don’t have the same kind of lien, or collateral, claims. Cofina bondholders, who say their debt is backed by sales tax revenue, are not getting paid while a dispute about their rights winds its way through court.

Pension bondholders and the retirement system for government employees began fighting in court before the [Puerto Rican (emphasis mine)] commonwealth filed bankruptcy in May. After the filing, the two sides worked out a temporary deal allowing bondholders to collect payments until at least Oct. 31, while they waited for the judge to make a final ruling on the collateral dispute. When Hurricane Maria struck in September, the resolution of that dispute was delayed.

Swain has not said when she will rule on the collateral fight. Should bondholders win, they would have rights to be paid from retirement contributions made by the various Puerto Rico government agencies on behalf of employees. If they lose, the bondholders would become unsecured creditors and likely see recoveries fall. They would also likely lose the right to the adequate protection payments.

The case is In re Commonwealth of Puerto Rico, 17-03283, U.S. District Court,District of Puerto Rico (San Juan).

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