How Puerto Rico seeks to lure Wall Street and put bankruptcy behind it
By Jim Wyss and Michelle Kaske
A little more than a year after emerging from bankruptcy, Puerto Rico’s top officials seek to convince global investors that the island, long battered by natural disasters and fiscal mismanagement, is open for business.
Hundreds of bankers, investors, and developers are expected to attend a conference this week called PRNOW (for Puerto Rico Now).
Attendees will include Commonwealth Governor Pedro Pierluisi and New York Governor Kathy Hochul.
The conference will seek to reacquaint Wall Street institutional investors with Puerto Rico and allow the island – now with federal reconstruction money – to boast of its recent accomplishments, such as increased tax revenues and levels of economic activity, tourism, and employment.
Those successes were hard-earned after the island began the largest municipal bankruptcy in US history in 2017, just as Hurricane Maria battered it, one of the most destructive storms ever touching US soil.
A federally appointed oversight board has monitored Puerto Rico’s finances since 2016.
“Our economy is back in positive territory after a decade-long slowdown,” Pierluisi told the Puerto Rico Chamber of Commerce on Tuesday.
“We can be optimistic about the future because Puerto Rico’s potential is reflected in all sectors of our economy and society.”
Puerto Rico’s gross domestic product increased by 3.7% last year, the highest growth in over two decades, according to the island’s planning board.
The island needs that growth: more than 40% of the population lives in poverty, while the median household income is about US$22,000 annually.
ENERGY CRISIS
The conference, celebrating its second edition, begins Thursday with a conversation between Pierluisi and Omar Marrero, the island’s secretary of state, followed by Hochul.
Subsequent sessions, led by the Commonwealth’s economic cabinet, will focus on the island’s fiscal outlook, federal recovery funds, and economic moonshot opportunities.
Friday’s session will focus on one of the island’s biggest challenges: the energy sector’s transformation.
The island desperately needs affordable and reliable energy to ensure its future growth.
But its main electricity provider, the Puerto Rico Electric Power Authority (PREPA), remains bankrupt and mired in litigation as it tries to restructure some US$9 billion in debt.
The utility and bondholders have yet to reach a new debt reduction agreement.
The judge overseeing the case has threatened to dismiss it if the parties fail to agree on a confirmable restructuring plan, opening the door to more litigation.
Pierluisi and Puerto Rico officials will also court traditional municipal bond buyers just as the island’s coal-fired power plant is set to default on a tax-exempt debt payment on June 1.
The company that oversees the facility, AES Puerto Rico LP, says it doesn’t have the money to pay.
Although the debt is not an obligation of the Commonwealth or PREPA, it was sold through a government conduit on behalf of AES to build the plant, which sells electricity to PREPA.
REGAINING CONTROL
Friday’s final panel will be closely watched by municipal bond traders from Barclays, RBC Capital Markets, BofA Securities, Jefferies, and JPMorgan, who will discuss the state of the market.
One of the preconditions for the federal oversight board to dissolve – and return budgetary control to the commonwealth government – is for the island to return, in its entirety, to the bond market.
The local government has yet to demonstrate to investors that it is willing to pay its debts.
Although the commonwealth paid principal and interest in the current fiscal year – for the first time since defaulting on its general obligation bonds in 2016 – the oversight board included that debt service expense in the budget after island lawmakers failed to do so.
Lawmakers, Pierluisi, and the oversight board are now crafting the budget for fiscal year 2024, which begins July 1.
Banks want Puerto Rico to obtain investment-grade ratings and submit its financial statements on time to increase the pool of available investors, as many are restricted from buying speculative-grade debt.
Moody’s Investors Service and S&P Global Ratings downgraded Puerto Rico’s general obligation bonds to “junk” in 2014.
Pierluisi calls the island’s business community to “row in the same direction” to ensure economic progress.
“We are at a critical moment in our history,” he said, “a transcendental moment that will lay the foundation for our future.”
*Contributed by Sam Hall.
With information from Bloomberg
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