Puerto Rico News Digest For May 1, 2017

MAY DAY! 

ENRAGED PROTESTERS VENT THEIR ANGER

Photo by @Tatymailine

As part of the massive general strike which was called for May 1st, scores of citizens took to to the streets across Puerto Rico today -- mainly in the San Juan metro area -- to protest the brutal austerity measures sought by the Financial Control Board and the administration of Governor Rossello, as they deal with the island's debt crisis. Labor, academic, religious, feminist, student and other groups took part in the demonstrations, which took place at the University of Puerto Rico in Rio Piedras, La Fortaleza in Old San Juan, Luis Muñoz Marín International Airport and other locations. At the latter, protesters blocked the entrance to the airport early this morning. Several of the marches around San Juan converged around noon at Hato Rey's "Milla de Oro" financial district, where some protests turned violent. Many protesters converged in front of the Seaborne Building, where the Financial Control Board is based. Several buildings in the area were vandalized, with Banco Popular's building taking the brunt of it, as protesters threw rocks, broke glass and had confrontations with building security staff. Police dispersed protesters with tear gas and rubber bullets.

Photo by @carlaamarie


Later in the afternoon, Plaza Las Americas closed the mall's parking facilities as a safety measure. On nearby Roosevelt Avenue, protesters blocked the road with large stones and other debris, while on Muñoz Rivera Avenue, someone started a small fire in a lane of traffic. Some individuals on Muñoz Rivera refused to vacate the roadway despite the Police's barrage of gas and rubber bullets. SWAT teams, along with regular Police, had been deployed all over the area throughout the day. Various businesses in Hato Rey, including a CVS pharmacy, shut down due to the situation. Some of them were vandalized with graffiti or had their windows broken. Rocks were also thrown through the windows of the old headquarters of the New Progressive Party. Close to 5 PM, Police were able to retake Muñoz Rivera Avenue, after several arrests were made. At around this time, Governor Rossello took part in a press conference at La Fortaleza, in which he condemned the "violent incidents".

Dodd-Frank Is About To Be Thoroughly Hillaried

Commentary

Richard Lawless

I can no longer sit quietly and watch this country implode from all of the Wa-
shington corruption.

Today I watched Hillary Clinton's speech, and I was appalled. I watched her 
tell the audience how she would bring Wall Street to heel and hold them acc-
ountable. I listen to her say how she would use Dodd Frank legislation to ma-
nage that process. It is all complete BS.

Hillary is fully aware of the large scale bond fraud uncovered in Puerto Rico.   
A criminal conspiracy so large that it calls into question all $70 billion dollars
of Puerto Rico debt.  Hillary is calling for a complete bailout and supports cu-
rrent legislation to do just that. She does not support prosecution.

The Puerto Rico Senate held investigative hearings in early 2015 to explore the 
financial failure of one of its largest municipal agencies. One government exe-
cutive after another testified under oath that they knew they were technically ba-
nkrupt when they issued these bonds and could not pay they back.  The witness-
es then went on to say that although the credit agencies (Moody’s, Fitch and S&
P) knew they were insolvent, they could secure good credit ratings for the bonds 
for the “right fee”. According to the same testimony, Wall Street’s biggest banks 
knew all this but for the “right sales fees” they would sell these junk bonds as sa-
fe retirement income to their retired investors.

The SEC has already performed four full audits on four bond issues and found 
the audits to be consistent with the Senate testimony.  These agencies were insol-
vent and it could not have been accidently overlooked by the Rating Agencies and 
the Banks.

We have seen this before with the 2007-2008 CMBS (mortgage bonds) crisis. The 
Rating Agencies and the Banks almost prefer to support these failing agencies be-
cause it forces them to refinance debt they can’t pay off as agreed before they have 
to admit it to their bond holders.  This “Ponzi Scheme” forces frequent and costly 
refinancing on a regular basis, generating huge fees for the Rating Agencies and 
Banks. All good, if you can continue to refinance fast enough and bring in new in-
vestors quick enough to pay off the old investors.  As in the case with Puerto Rico 
and other States and Cities, even a small hiccup causes the hold house of cards to 
collapse.

It is pretty clear that the Agencies issuing the bonds, the Rating Agencies issuing 
fraudulent ratings and the Banks selling junk bonds all broke the law and violated 
almost all of the provisions of Dodd-Frank.

All Congressman and Senators were issued this information.  Most did nothing 
but those that did, quickly stepped up to protect their Wall Street contributors. You
see, if this got out, the Rating Agencies and Banks would be held accountable for 
the tens of billions in bond losses.  Politian’s and government employees may be 
charged criminally. 

To date, there has been over $30 billion dollars in bond losses from this scam. The 
average bond holder owns less than $10,000 in bonds and that represents over 20% 
of their total savings. Not hedge funds as the Press and our Political leaders would 
have you believe.  When these bonds collapsed, after the senior citizens lost half 
their money, then the hedge funds came in to buy these bonds at 33-50 cents on the 
dollar with the hope of making money in the future.  The hedge funds are being us-
ed as a distraction to take the discussion away from the original crimes. Most Pu-
erto Rico Bonds are still held by individuals like you and I.

New York residences owned the single biggest piece of this debt at about $4 billion 
dollars, followed closely by Florida, New Jersey, Pennsylvania and Illinois. I don’t 
think any State has loss less than a few hundred million dollars. It is not a Puerto 
Rico Fraud. it is a National Fraud.

This entire thing sickens me and makes me glad that I am no longer part of the Wa-
shington two step.  The two step is a Political Dance that requires most politicians 
to add a political calculation to every vote they make.  There are three simple ques-
tions, how will this vote increase my power base, will it add to my reelection war 
chest and will it improve my personal financial statement.  There is no considerati-
on given to the masses they represent.  It is all about trading American Treasure 
and Tax Payer money for personal gain.

In this case it gets even better.  The Politicians were not happy stealing tens of bi-
llions from America’s middle class senior citizens when there is more to be taken. 
Enter the PROMESA legislation. Legislation that removes all existing legal rights 
from the innocent bond holders.  The legislation actually prevents the bond holders 
from suing. All supported by politicians that know all about this. 

Being around Washington for so long I know what most of these government offi-
cials did before securing their government jobs.

Treasury Secretary Lew and his legal counsels Weiss and Campbell worked for 
Citibank and Lazard, respectfully.  In the period that this fraud started Citibank 
and Lazard were among the first firms to sell these fraudulent bonds.  Now, using 
their position in government, all three of these gentlemen marketed congress for 
a full  bailout of Puerto Rico with Tax Payer Dollars and the innocent bond hold-
er’s money. Not once in all the committee meetings they participated in did they
site this conflict of interest while purposing solutions that benefit all their former 
employers.

Paul Ryan a professed conservative, was not supportive of any bailout or the PRO
MESA legislation.  That is until he met with Secretary Lew.  After the meeting, 
Ryan supported the legislation that violates every core principal that the Republi-
can party stands for.  What happened?  I suspect two things.  Lew reminded him
that he had a bright career and Wall Street would not forget this (contributions for 
his continued career advancement) and immediate funds for his current reelection 
campaign.  I as guessing about the former, but if you look at the contributions that 
flowed into him from Wall Street firms after the meeting, well it was impressive.  
Not surprisingly, most of the contributions came from firms directly involved with 
Puerto Rico.

It is clear that the Democrats has a strategy in place to redirect what’s left of the 
bond holders money to fund the unfunded government (union pensions).  How 
will they do this?  It is simple and the Press is going along with it.  Claim that the 
bonds were issued fraudulently and claim they shouldn’t be paid back to the bond 
holders. Float stories that the bond holders are just greedy hedge funds and not peo-
ple like you and I.  Who likes hedge funds?  Float stories that Puerto Rico is cance-
lling services from lack of money.  Kids are dying in the streets.  You have heard 
all this before.

As a debt expert, I should point out that when a family does not make its mortgage 
payment (bond payment example) that family has more cash at the end of the mon-
th, not less.  Puerto Rico has withheld hundreds of millions in payments and has mo-
re cash than you would imagine. Any cancelling of services is just another strategy 
being employed by less than honorable people.

I should mention in closing that Elizabeth Warren (claims to be anti-Wall Street) 
knew all about this but was the first to propose an amendment to an energy bill 
preventing innocent bond holders from suing.  Just follow the money for Elizabeth.

This is not just a $70 billion-dollar scam (Puerto Rico). It includes Chicago, Conn-
ecticut and many other States.  This is a Political Strategy to make up for years of 
over spending.  When legal taxes are no longer enough, steal the bond holder’s mo-
ney.  Individually the bond holders are not very powerful and they will not underst-
and what their leaders are doing to them.



Richard Lawless is a former senior banker who has specialized in evaluating and granting debt for 
over 25 years. He has a Master’s Degree in Finance from the University of San Diego and Bachelor’s
Degree from Pepperdine University. He sits on a number of Corporate Boards and actively writes for 
a number of finance publications. The opinions expressed in the preceding article are solely those of
Mr. Lawless and do not necessarily reflect those of The Puerto Rico Monitor, its editors, contributors
or advertisers.

Puerto Rico And The State of The U.S. Bond Market

Samuel Rosin


United States held municipal bonds have reached peak investment. Des-
pite record-low yields due to consistently low interest rates, record high
investment led municipal bond funds to accrue $632 billion in assets as
of June 1.

This comes in direct contrast to Puerto Rican municipal bonds. Reduced
to junk status in 2014 by three major credit agencies, the island’s local,
state, and national tax-exempt bonds make up the vast majority of its $70
billion debt.

On May 1, Puerto Rico defaulted on the first major scheduled payment on
its municipal bonds...[CONTINUE READING]

The Municipal Bond Market is a Massive Criminal Enterprise: Get Out Now or Pay Later

Commentary

Richard Lawless

Senior Citizens and Savers throughout the fifty states and Puerto Rico have
taken tens of billions in municipal bond losses. It has become clear that the
Rating Agencies have been knowingly and intentionally issuing good credit
ratings for technically bankrupt municipal entities in exchange for healthy
fees.

The Puerto Rico financial collapse was one of the first events to shine on a
light on this widespread activity. The Puerto Rico Government issued a 23-
page report that included sworn testimony from municipal executives that the
Rating Agencies knew they couldn’t repay the debt but for a higher fee, they
would issue good credit ratings. To date, the fraudulent credit ratings have al-
ready generated $30 billion dollars in losses across the fifty states. The Rating
Agencies get wealthy and America’s Seniors and Savers are paying the price.

I contacted the three General Counsels for Moody’s, S&P and Fitch. Fitch de-
nied the allegations and Moody’s and S&P failed to respond. I contacted the
Board of Directors for all three ratings agencies and forwarded the testimony
and financial audits supporting this practice.  No Board Member has respon-
ded. The Agencies engaged in this practice, contributing to the 2007-2008 fin-
ancial meltdown that cost Americans trillions and were never held accountable.
There is good reason for the Rating Agencies confidence that they will once a-
gain walk away scot free.  It is clear that Congress is much more willing to th-
row America’s Seniors under the bus then they are to bite the hand that feeds
them.

Although all 50 States have residents that took material losses, New York was
the highest with over $2,000,000,000 followed by Florida, New Jersey, Penn-
sylvania, Illinois and California. All of States Attorney General’s know about
this activity but none have moved to protect their residents.  They are not alo-
ne, this activity was reported to the FBI, SEC and U.S. Attorney’s office. They
all expressed deep concern and they have all failed to take any meaningful ac-
tion.

Given the indifference by our Political Leaders, Law Enforcement and our Ju-
dicial System, I strongly recommend that Seniors and Savers divest themselves
of all municipal bond investments.  It is only a matter of time for Chicago and
California, and it is clear there will be no protection from the massive losses.



Richard Lawless is a former senior banker who has specialized in evaluating and granting 
debt for over 25 years. He has a Master’s Degree in Finance from the University of San Diego 
and Bachelor’s Degree from Pepperdine University. He sits on a number of Corporate Boards 
and actively writes for a number of finance publications. The opinions expressed in the pre-
ceding commentary are solely those of the author and do not necessarily reflect those of The
Puerto Rico Monitor, its editors, contributors or advertisers.

Puerto Rico News Digest For June 1, 2016

HURRICANE SEASON STARTS TODAY

From The San Juan Daily Star:

"U.S. government forecasters expect a near-normal Atlantic hurricane season,
after three relatively slow years. But they also say climate conditions that influ-
ence storm development are making it difficult to predict how many hurricanes
and tropical storms will arise over the next six months. The National Oceanic
and Atmospheric Administration’s outlook released late last week called for a
near-normal season with 10 to 16 named storms, with four to eight hurricanes
and one to four “major” ones with winds reaching 111 mph and up..."

SENATE HONORS VETS ON MEMORIAL DAY

From Caribbean Business:

"The Senate received Monday a group of veterans and their families, as well as
officers, to commemorate Memorial Day in a ceremony at a Capitol monument
honoring the fallen in various wars. Sen. Miguel Pereira, chairman of the Judici-
ary, Security and Veterans Committee, hosted the activity and received Col. Mar-
ta Carcana, adjutant general of the National Guard of Puerto Rico, who delivered
a message to attendees. Also attending the ceremony were Jorge Cases, spokes-
man for the Veterans Advocate Office; former Puerto Rico National Guard Adjt.
Gen. Luis González Vale and former San Juan Mayor Héctor Luis Acevedo, who
retired as a lieutenant colonel from the U.S. Army Reserve in 1998..."

OMB: PAYING DEBT COULD MEAN LAYOFFS

From News Is My Business:

"If the government of Puerto Rico were to pay the full amount due next year in
GO debt would require laying off more than 3,400 public workers, among other
adjustments, Luis Cruz, executive director of the Office of Management and Bud-
get, told members of the House Finance Committee during budget hearings Mon-
day. In his testimony, Cruz said the $209 million set aside from the General Fund
will go to cover GO interest payment, but no principal amount, which would total
$1.4 billion next fiscal year..."

SAN JUAN TAXI DRIVERS PROTEST UBER

From Fox News Latino:

"Traffic chaos prevailed in San Juan on Tuesday as taxi drivers and  truckers
protested the arrival in Puerto Rico of Uber, the private ride-hailing service,
which links passengers and drivers via a mobile application. On Tuesday mor-
ning it was difficult to find taxis on the capital streets, while some tourist excur-
sions had to be cancelled when drivers with certain tourist operators refused to
work..."

Puerto Rico News Digest For May 19, 2016

AGP DECLARES ROAD AGENCY EMERGENCY

From ABC News:

"Puerto Rico's governor on Wednesday again used a state of emergency 

decree to protect one of the island's struggling public agencies from law

-suits and preserve dwindling liquidity as the U.S. Congress works on a 

bill to restructure the island's $70 billion public debt. The order allows Pu-

erto Rico's Highways and Transportation Authority to suspend the transfer 

of toll revenues to bondholders and imposes a stay on legal claims, Gov. 

Alejandro Garcia Padilla said. That will allow the government to pay con-

tractors and avoid paralyzing safety and improvement projects, he said..."

TOWNS WASTE $35M ON VANITY PROJECTS

From The San Juan Daily Star:

"The Office of the Comptroller said Tuesday that in a period of six years
more than $35 million has been squandered in municipal works and proj-
ects that are not used by the public. The data comes from 35 different si-
tuations in 17 municipalities between 2011 and 2016, according to Inter
News Service. In the municipalities of Culebra, Luquillo, Naranjito and
Vieques, $27.3 million was spent for activity centers, and in Aibonito,
Culebra, Peñuelas, Rincón and Río Grande, $2.3 million was spent for
recreation areas, and in Gurabo, Santa Isabel and Vega Baja, $1.2 million
was spent for the installation of monuments, structures and bronze plaques..."

BILL CLINTON STUMPS FOR WIFE IN PR

From Caribbean Business:

Former U.S. President Bill Clinton promised Puerto Ricans on Tuesday
that his wife, Hillary Clinton, will fight for equal treatment of the econo-
mically struggling island if she’s elected president. He also said she backs
immediate action to restructure the island’s $70 billion public debt as the
local government warns it is running out of money for essential services...
Clinton visited the island ahead of the June 5 primary, and officials say the
Democratic presidential candidate herself will come before the vote. Verm-
ont Sen. Bernie Sanders visited on Monday..."

PR LOSES MAJOR CONVENTION TO ZIKA

From News Is My Business:

"The Internet Corporation for Assigned Names and Numbers (ICANN) conf-
irmed Tuesday the cancellation of its upcoming convention slated to take pla-
ce in San Juan, due to concerns related to the Zika virus, Akram Atallah, first
president of ICANN’s global domains division, said. It is the second consecu-
tive event the organization in charge of coordinating the maintenance and pro-
cedures of several databases related to the namespaces of the internet has relo-
cated this year over the mosquito-borne ailment. Earlier this year, ICANN ann-
ounced it was moving the ICANN56 convention from Panama City, Panama,
to Helsinki, Finland..."

PR Treasury Reports Revenues $76.2 Million Above Estimates

Press Release

Government Development Bank


PUERTO RICO TREASURY REPORTS GENERAL FUND NET REVENUES
TOTALED $1.28 BILLION IN APRIL, $76.2 MILLION ABOVE ESTIMATES

Sales and Use Tax totaled $207.9 million, $87.8 million above April 2015


(San Juan, Puerto Rico) – Treasury Secretary Juan Zaragoza Gómez reported that 
net revenues recorded by the General Fund in April 2016 totaled $1.28 billion, $76.2 
million above revised estimates, and $47.7 million below net revenues in April 2015.

Corporate income taxes were the main revenue driver in April with $409.2 million in 
collections, a year-over-year increase of $32.5 million, or 8.6%, representing 31.9% 
of total revenues for the month, and exceeding revised estimates by $69.7 million. 
A majority of corporate income tax revenues are collected in April, as most corpora-
tions’ returns, as well as the first estimated tax payments for the tax year, are due
in April.

Individual income taxes were another important revenue category with $302 million 
in collections, a $57.4 million year-over-year decrease. One of the reasons for this 
decrease is that collections in April 2015 included $29 million in non-recurring reve-
nues from special laws. April 2016 Sales and Use Tax (“SUT”) revenues totaled 
$207.9 million, $87.8 million above April 2015 receipts. The difference is the result 
of the increase in the state SUT rate to 10.5% from 6% and the 4% tax on designa-
ted business-to-business and professional services (known as B2B).

B2B collections totaled $12.6 million in April. SUT revenues were allocated as foll-
ows: $197.7 million to the General Fund; $9.9 million, or 0.5%, to the Municipal Ad-
ministration Fund; and $270,000 to the Film Industry Fund.

Excise tax categories registered both upward and downward year-over-year chan-
ges. Foreign excise taxes and motor vehicle excise taxes increased by $4.8 million 
and $4 million, respectively,while alcoholic beverages and cigarette excise taxes de-
creased by $1 million and $8.8 million, respectively.

Finally, in April the category known as “Other” registered a $130.8 million decrease. 
This difference is the result of revenues in April 2015 that were non-recurring this 
year. Act 44-2015 allowed the pre-payment of a special tax on certain transactions. 
These transactions included a pre-payment, at a reduced rate of 5%, of taxes on 
corporate dividends for future distributions of accrued benefits and profits. Reven-
ues from prepaid taxes on dividends, which are classified under the category of 
Other, were $111 million in April 2015.

Fiscal year-to-date (July-April) revenues totaled $7.54 billion, a year-over-year incre-
ase of $213.3 million, or 2.9%, $45.7 million above revised estimates, and $238.5
million below estimates included in the original FY 2016 budget. Treasury Secretary 
Zaragoza Gómez noted that based on revenue behavior up to April, estimates inclu-
ded in the revised $9.29 billion budget for FY 2016 are expected to be met.

Credit Rating Agencies Throw Our Senior Citizens Under the Bus And Congress Pulls Out All Stops to Protect Their Wall Street Friends!

Commentary

Richard Lawless










Once again we are faced with one inevitable truth.  Our legislators protect Wall
Street, not us.

The municipal bond market is approximately $4.2 trillion dollars. Municipal
bonds are a favorite of retired Americans and Senior Citizens for their double
tax free income.  80% of the bonds issued are either directly held by these folks
or held through a mutual fund.

Senior Citizens rely on this income to supplement their social security and pen-
sions.  The average bond holder has a household income of $30,000 or less.

There is clear and compelling evidence of massive municipal bond fraud on the
part of S&P, Moody’s and Fitch.  The Puerto Rico financial collapse spurred a
number of Senatorial Hearings in Puerto Rico.  In these hearings there was di-
rect sworn testimony from municipal agency executives that the rating agencies
knew they were bankrupt but for the right fee would issue a good credit rating
for their bonds.  Subsequent accounting audits of the bond issues verified that
the entities were technically bankrupt when S&P, Fitch and Moody’s issued good
credit ratings to them.  $56 billion of the $70 billion in bond debt issued, is held
by Americans in the fifty states.

In addition to first hand testimony and audits there is abundant evidence of coll-
usion between the rating agencies.  Much like the results of a DNA test; 10,000,
000 to 1 probabilities, the odds that the three rating agencies got the same things
wrong across so many bond issues, leaves no doubt, there was collusion. Make no
mistake, the evidence is overwhelming and this is a massive criminal enterprise in-
volving hundreds of billions of dollars.

All of our Congressman and Senators have been given the testimony and the audits.
The legislatures are aware of the SEC and FBI investigations and are doing every-
thing they can do to obstruct any progress on that front.  There are even CIA recor-
dings that implicate the Puerto Rico FBI and US Attorney offices in this criminal
enterprise.

While most of our Representatives do nothing, a small but powerful group of Con-
gressman and Senators are aggressively throwing us under the bus to protect their
contributors.

A complete and full report was also sent to the House and Senate Oversight Co-
mmittees. I recommend that all Americans call the numbers below and let them
know, “WE ARE MAD AS HELL AND WILL NOT TAKE IT ANY MORE”.


House Committee on Oversight                           Senate Committee on Oversight
2157 Rayburn House Office Building                   340 Dirksen Street (Senate Offices)
Washington, DC 20515                                        Washington, DC 20510

Phone: (202) 225-5074  Fax: (202) 225-3974        (202) 224-4751



Mr. Lawless has twenty-five years of experience in performing forensic accounting reviews.  Mr. 
Lawless received his Bachelor of Science Degree from Pepperdine University and a Master’s in 
Business Administration with a focus on finance from the University of San Diego.  Richard has
had a long banking career as a commercial lender and has served as a senior and executive ma-
nager for major banking institutions. In these roles Mr. Lawless was responsible for billions of 
dollars in assets.  Mr. Lawless has also served as Chairman and CEO for a number of non-ban-
king companies some of which have been in the energy sector. Mr. Lawless' opinions are exclu-
sively his own and do not necessarily represent those of Th Puerto Rico Monitor, its contributors 
or advertisers.

GDB Creditors Agree To 53% 'Haircut'

Press Release

Government Development Bank


GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO
ANNOUNCES FRAMEWORK OF INDICATIVE TERMS FOR
RESTRUCTURING WITH GDB AD HOC GROUP OF CREDI-
TORS

Creditors Agree on 53% Haircut for Global Restructuring and Forbea-
rance From Exercising Remedies 

Announcement Follows Declaration of Moratorium by Governor on
Obligations of GDB 

GDB Will Pay Interest on May 1 


San Juan, P.R. – The Government Development Bank for Puerto Rico (“GDB”)
announced today that it has negotiated a framework of indicative terms for a
restructuring of GDB bonds with a group of bondholders (known as the “Ad
Hoc Group”) holding approximately $900 million of GDB’s outstanding notes
(the “Old Notes”). The framework includes an understanding with the Ad Hoc
 Group regarding key terms for a restructuring of a portion of GDB’s Old Notes
 held by the group and a path forward to a broader restructuring of all of GDB’s
Old Notes. The agreement on key terms will provide a framework for GDB and
 the Ad Hoc Group to continue negotiations over the coming weeks with a view
 to enter into an agreement in principle that would memorialize in full the terms
 and conditions of the proposed restructuring. As part of the understanding rea-
ched today, the Ad Hoc Group and GDB intend to negotiate related terms over
the next 30 days and forbear from pursuing legal action related to the May 1st
debt service payment during such negotiations.

 The agreed key terms contemplate a two-step restructuring of GDB’s obliga-
tions, in which all holders of the Old Notes (including the Ad Hoc Group) wo-
uld first exchange (an “Interim Exchange”) their current holdings for new notes
at GDB (the “Interim Notes”), to be followed by an exchange of such Interim
Notes as part of a future global restructuring of the Island’s debt that includes
 GDB’s debt (the “Global Restructuring”). As part of the agreed key economic
terms, creditors would agree to haircut of 43.75% of the face amount of their
 Old Notes in the first-step exchange. In addition, as part of the transaction,
 bondholders would agree to the proposed treatment for their notes, in a sec-
ond step exchange as part of a Global Restructuring, that would result in an
agreed haircut of 53% of the face amount of their Old Notes. The agreed fra-
mework of key economic and structural terms for the Interim Exchange and
treatment in the Global Restructuring is set forth more fully in Annex A here-
to. As noted in Annex A, many important terms of the transaction remain sub-
ject to further negotiation between the parties. In addition, the transaction wo-
uld be subject to several conditions, which would need to be met over the co-
ming months before the deal could proceed.

Importantly, the proposed terms of the Interim Exchange require 100% partici-
pation by all bondholders, including, in addition to the Ad Hoc Group, the state-
chartered credit unions in Puerto Rico (or “cooperativas”) and other large insti-
tutional groups on island. As a result, the proposed transaction is being designed
to take into account the varied interests of all its creditors, and GDB and the Co-
mmonwealth plan on continuing discussions with such groups over the coming
weeks to ensure that any agreement in principle reflects their concerns in a debt
restructuring. Similarly, as a comprehensive deal for all GDB stakeholders, the
transaction contemplates providing a path forward to depositors, including by
providing collateral for their deposits, as GDB works through its challenges.

Without federal restructuring legislation, including the tools to bind non-con-
senting creditors, the transaction would be highly unlikely to reach the requi-
red participation levels. In the absence of federal legislation, the GDB would
not be able to complete the deal as proposed, and the Commonwealth as a wh-
ole would not be able to move towards a comprehensive restructuring of the
island’s debt.

The announcement of this framework of indicative terms with the Ad Hoc Gro-
up follows the declaration of the Governor of the Commonwealth of Puerto Ri-
co of a moratorium on debt service obligations of GDB. Consistent with the te-
rms of the Governor’s executive order, GDB intends to pay interest on its bonds
due May 1.

“The agreement on key terms with the GDB Ad Hoc Group is the result of ma-
ny weeks of negotiations and discussions between us and the Ad Hoc Group. We
appreciate the good faith and patience they have shown throughout this process
the work both they and Commonwealth officials have put into ensuring that the
interests of all Commonwealth stakeholders are respected going forward. While
we have many steps to go before we reach a full agreement on a deal and that
deal can be consummated, this agreement represents a vital first step in the Co-
mmonwealth’s path to economic recovery,” said GDB President Melba Acosta
Febo.

“To be very clear, this is but one piece in a complicated process that will require
every Commonwealth creditor to participate. The time necessary to reach even an
agreement on key terms with 1/4 of a single issuer’s bondholders demonstrates
 that, in the absence of federal legislation that gives Puerto Rico the tools it needs,
 the island will be condemned to a quagmire of economic stagnation with no relief,
 for which both 3.5 million American citizens and our creditors will bear the con-
sequences.”

Puerto Rico News Digest For May 2, 2016

PR DEFAULTS ON GDB PAYMENT 

From Caribbean Business:

"In a televised message Sunday, Gov. Alejandro García Padilla announced
he has declared a moratorium on the Government Development Bank’s (GDB)
debt service, as the commonwealth stands ready to partially default on as much
as $270 million due May 2 on the bank’s debt. The cash-strapped institution
would have faced a $400 million payment on principal, with an additional $22
million in interest. But during the past few days, the GDB pushed maturity on
roughly $30 million after reaching a deal with local credit unions, followed by
an agreement struck with a creditor group to enter into a 30-day forbearance
agreement that would cover more than $100 million of the bank’s May payment.
The GDB already stated it will pay about $22 million in interest due May 2, as
well as roughly more than $40 million in debt payments across other common-
wealth credits that also hit on Monday..."

FIRST ZIKA DEATH REPORTED IN PR

From The Guardian:

The first American has died from complications related to the Zika virus,
health officials with the Centers for Disease Control reported late Friday.
A Puerto Rican man in his 70s died in February from “complications re-
lated to severe thrombocytopenia”, the CDC reported in its Morbidity and
Mortality Weekly Report. The man, from the San Juan area, fell ill with the
Zika virus and experienced symptoms including fever, rash and joint pain.
After recovering from the Zika symptoms, the man then developed immu-
ne thrombocytopenic purpura, or ITP, an autoimmune disorder that has been
linked to the virus. The bleeding disorder that killed him was as a side-effect
of the ITP..."

BERNIER CALLS FOR IVA REPEAL

From The San Juan Daily Star:

"Popular Democratic Party (PDP) President and gubernatorial candidate Da-
vid Bernier on Thursday called on the PDP majority in the Legislature to pass
legislation to repeal the value-added tax (IVA by its Spanish acronym) slated
to go into effect in June. “To permit an increase in the value-added tax would
hurt the pocketbooks of our people and the operations of our businesses,” Ber-
nier said. “The responsible thing at this time is that the Legislature act to pre-
vent the IVA and the increase in the B2B [business-to-business tax] from being
enacted in final form.”

Even An Immediate Bailout of Puerto Rico Is Unlikely To Save It!

Commentary

Richard Lawless


For almost a decade it appears that the island of Puerto Rico has been 
issuing municipal bond debt that it knew it could never repay. Municipal 
entities in Puerto Rico like the government owned electric utility have 
been technically bankrupt for many years. This utility and almost every 
other municipal entity on the island have been paying the credit ratings 
agencies and banks tens of millions of dollars a year to secure unjusti-
fied credit ratings The utility by itself spends $40-$60 million dollars 
a year with the ratings agencies and banks to keep the money flowing.

A simple review of the bond offering memorandums, easily available to 
anyone, shows almost all these entities to be in dire financial condition, 
many, if not most, technically bankrupt. Unbelievably, the credit agencies 
were lining up to offer A & BBB ratings for the right fees.  Wall Street’s 
biggest banks did the same thing and then sold these very troubled bonds 
to their unsuspecting investors.

There has been over $5 billion dollars in losses so far to the bond holders 
who bought the utilities bonds, mostly retired Americans of modest means.
No one has been questioned, no one has gone to jail.  

When you look closely at these bond offering memorandums you will not 
only see that the entities never had the money to make the payments on the 
bonds but bond offering after bond offering, the entities claim to be raising 
money for improvements.  The improvements never get done, the money 
disappears and the following year another request for money for the same 
project appears in a new memorandum and once again the money disappears
and on and on.

The bonds rating agencies never mention the improvements never get done 
but the money disappeared. The Agencies claim that the bond payments will
be made in whole or in part from accounts receivable that have not been co-
llected in a decade and in small print say they are unlikely to be collected in 
the future. Again not important I guess.

The Puerto Rico Legislature held committee meetings where executives from 
the utility and the lead auditor from Ernst and Young claim the ratings agencies 
and banks were fully aware the utility was bankrupt when they issued the A & 
BBB ratings.  Umm, everyone wants to seem to ignore this fact.

Everywhere I looked in Puerto Rico I saw the same thing. Junk bonds with a 
very high likelihood of default sold to everyday Americans as low risk retire-
ment income.  While this concerns me greatly, it is not why I am so concerned.  
You see, after I looked at Puerto Rico, I looked at Chicago, Compton, Oakland, 
California and New York.  You guessed it, much of the same. Until these issues 
are addressed, throwing more dollars at Puerto Rico will only postpone the 
inevitable.

When Bernie Madoff started out many people saw the same thing.  Reports 
were made to the SEC and ignored, the FBI and ignored the DOJ and ignored. 
He could have been stopped at $100,000,000 dollars, instead he stole $40 bi-
llion dollars before it all collapsed.  There were whispers and they were igno-
red. I am screaming from the mountain top and I hope you are listening.

Everyone acknowledges that Madoff ran a Ponzi scheme.  The early investors 
were promised things he could not deliver and new investors were sought out 
to pay off the early investors and so on.  Over time its gets bigger and bigger 
and finally the last investors lose everything.

Today there are approximately 60,000 entities that issue municipal bonds. Four 
trillion dollars in bonds are in the market today, owned entirely by Americans, 
mostly retired Americans.  These retired Americans might get $900 a month 
from Social Security, $500 a month from savings and another $600 a month 
from their bonds.  They are barely making it on the $2,000 a month. Take away
the $500 in bonds and they lose their home, can’t pay for medicine or simply 
give up. 

If the municipal market activity was to slow down or temporarily stop, it is 
possible that the American people would see $2-$2.2 trillion dollars in losses. 
 The house of cards built on fraud and deceit would collapse.

How could this happen?  It is easy, in the 2007-2008 CMBS/CDO crash that 
brought America to its knees, 6 million jobs were lost, millions more lost their 
home and trillions in wealth was wiped out.  That too was a Ponzi scheme built 
on false credit ratings. 

One person was charged with a crime, a crime that almost ruined our country.  
If no one is held accountable, why not do it again. So they did!

Our congressmen and Senators go to plush lunches with these folks, they go 
on wonderful fact findings trips to exotic locations, paid for by these folks, 
they get political contributions and for special favors, they get outlandish sp-
eaking fees.  It’s a great deal and they will protect it regardless of how many 
Americans they have to throw under the bus.

Other politicians want to buy votes. It is an election cycle. Have you listened 
to the speeches?  Free community college, no four years of free college, free 
this, free that. Why not?  Just because we have 19 trillion dollars in debt do-
esn’t mean we can’t have 25 trillion in debt. What debt, you guessed it, bond 
debt.  You see when you can’t raise taxes anymore and still keep you job, you 
have to take the money from someone.  Why not issue bonds and default on 
them later!  No one is paying attention, who reads those pesky bond offering
memorandums anyway. If  they are rated AAA or A or BBB, they must be 
good!

Most Americans don’t know that Municipal Bonds are not reviewed or moni-
tored by any agency.  Our tough talking politicians responded to the American 
people by passing a law that requires the agencies issuing these bonds, self-re-
port. I am not kidding, they wrote into law that the issuing agencies, credit a-
gencies and banks will not be monitored unless they write to the SEC and admit 
to doing something wrong themselves.  No really, this is true.  $4 trillion dollars 
and accountable to no one.  Our leaders even passed laws that make it very di-
fficult to sue if  someone like me uncovers it all.  I am sure it had nothing to do 
with those lunches, free vacations, political contributions and paid speeches. 
That would be cynical.

How about the press.  Well you see how they uncovered the CMBS/CDO cri-
sis. No wait a minute, it was American’s like me.  They did report on it when
it could no longer be ignored.  The financial papers get their business from the-
se very same firms, they wine and dine them, vacation with them and count on 
them to advertise in their papers.  When is the last time you can remember that 
the Wall Street Journal, The Financial Times or Bloomberg broke a meaningful 
story? Investigative journalism is dead unless it fits the political bias of a specific 
paper.

This house of cards is starting to collapse.  First Puerto Rico with Chicago next.  
At first the papers will print what their told to, it’s the economy, lack of jobs, the 
weather.  Anything but the truth.  When it becomes more than one or two cities, 
when the numbers are too big to ignore, someone will tell the truth and everyone
will ask how this could have happened?  How could it have gone on for so many 
years?   

Richard Lawless is CEO of Commercial Solar Power in Temecula, CA. The opinions expressed in the 
preceding commentary are solely his own and do not necessarily reflect the views of The Puerto Rico 
Monitor or its advertisers.