If Puerto Rico Thinks Bankruptcy is a Better Solution, They Have a Rude Awakening Coming!

   Commentary

   Richard Lawless

One should look no further than the Puerto Rico Electric Power Authority’s (PREPA) pending bankruptcy.

All credible financial analysts agree that PREPA only needs slightly more than a 10% reduction in debt service to continue paying its bills and operating as expected.  Over a three-year period, the utility negotiated with their bond holders for a 15% reduction in debt.  This consensual agreement gave the utility almost 50% more than it needed to get back on track. 

If the bankruptcy judges execute the hearings without personal or political bias, PREPA will get only what it needs to operate safely.  That number should reflect about a 10% reduction in debt, far less than was offered to the utility in their consensual negotiations with their bond holders.

For PREPA to receive a more favorable outcome in court they will have to shape an argument based on the following factors:

1.     PREPA has allegedly been over charging its customers every year for high quality crude oil while paying and taking delivery of sludge oil.  The difference in cost is hundreds of millions of dollars each year. That money is unaccounted for.   (Business wire 4-16-16, RICO Lawsuit)

2.     PREPA must pay unusually high accounting fees to KPMG to produce misleading financial statements each year. 

(KPMG lead auditor, Puerto Rico Senate Hearing 6-24-15)

3.     PREPA must pay unusually high bond rating fees each year to secure misleading bond ratings for their new bond offerings.  

(Puerto Rico Monitor 4-5-16, FINRA Settlements, on-going SEC Investigations)

4.     PREPA must pay unusually high sales fees to the major Wall Street Banks for them to knowingly market troubled bonds as safe investments.

(Reuters 6-28-17)

5.     PREPA budgets hundreds of millions of dollars each year for equipment maintenance and the money disappears while the repairs are rarely done. 

(SEC Whistleblower Financial Audit 1-18-16)

6.     The Puerto Rico Fiscal Control Board although mandated through legislation to approve consensual agreements with Puerto Rico’s Creditors, the Board has elected to ignore the legislation costing PREPA many millions in future litigation.

(Puerto Rico Fiscal Control Board 6-27-17)

7.     PREPA has numerous law suits, FBI and SEC investigations going on now, costing PREPA tens of millions in legal and consulting expenses.

(AlixPartners $28 million, etc.…)

8.     PREPA has massive unfunded pension obligations, although the pension contributions are budgeted every year they rarely contribute what was promised.

The PREPA attorneys and accountants will have to shape an argument that if they are to maintain their current level of mismanagement and malfeasance, more money must be taken from the innocent bondholders.

In an honest legal system, PREPA is unlikely to prevail.

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 several Corporate Boards and actively writes for several finance publications.

The Puerto Rico Monitor Endorses Rafael Bernabe For Governor

Puerto Rico has long been under the stranglehold of two large, corrupt political
parties, which are both in large part directly responsible for the social and econo-
mic dire straits that Puerto Rico finds itself in. The Puerto Rico Indepedence Par-
ty can no longer be seen as a viable alternative to these two parties...we need par-
ties and candidates who do not make the relationship between Puerto Rico and the
US Federal government their main reason for being. Independent "man (or woman)
on a white horse" candidates can't and won't tackle the real issues affecting middle
and working class Puerto Ricans. This is why the Puerto Rico Monitor endorses the
Working People's Party candidate Rafael Bernabe for Governor of Puerto Rico in
the 2016 election.

Dr. Bernabe's priority is to make Puerto Rico a place that works primarily for the
people who keep it running, not millionaires, industrialists, so-called investors or
corrupt machine politicians. He is the only candidate advocating for much needed
ideas like single-payer health care, a taxation system that demands fair contributi-
ons from our upper classes and economic reforms that will promote local business
over big-box-style retail and capital flight. He is also a friend of the LGBT comm-
unity and an advocate of preserving our valuable natural resources. Mr. Bernabe is
also in favor of an electoral system based on proportional representation, which
would open up our democracy to greater and more meaningful representation.

It is time to walk away from the corrupt party hacks, the hustlers, thieves and liars,
and cast a vote for the Puerto Rico that the majority sorely needs. Bernabe is not be-
holden to political party machines, donors or corporations. Regardless of your views
on Puerto Rico's political status, we encourage you take that first step by voting for
Rafael Bernabe on November 8th.

For more information, visit: http://ppt2016.org/candidaturas/nacionales



-The Editor

The Puerto Rico Monitor Endorses Bernie Sanders For President

The Editor

The Democratic Party Presidential nomination primaries in Puerto Rico take
place on June 5th. While residents of Puerto Rico can't vote in the Presidential
election, they can at least have a say in who gets to be the nominee for each of
the two major parties. Those Puerto Ricans who are planning on voting in the
Democratic primary would do well to use that voice to tell the Democrats that
Bernie Sanders needs to be their nominee.

Senator Sanders is the only candidate who is calling for real help for Puerto Rico
as it goes through its devastating financial crisis,and is also the only one who has
committed to really following through on the desires of the Puerto Rican people
regarding the island's relationship with the U.S., whether that turns out to be state-
hood or independence. He is also for instituting common-sense government pro-
grams that nearly every other industrialized country already has: universal health
care and free access to state colleges.

Unlike his primary opponent Hillary Clinton, Bernie Sanders is not owned by the
financial industry, and does not take their money. Also unlike Clinton, he is agai-
nst involving the US (and Puerto Rico) in more unnecessary wars. Senator Sand-
ers is the only candidate that makes sense, both for the mainland and for its lar-
gest colony. A vote for Sanders can spare us the insanity and instability of Donald
Trump and the calculating corruption of Hillary Clinton. He is truly a people's can-
didate who stands up for the little guy and the working class. His career in Congress
more than proves that.

“When people are suffering and hurting, you don’t continue to squeeze
them. We cannot allow Puerto Rico’s budget to be balanced on the backs
of the most vulnerable people – working families, veterans, the elderly,
children and the poor. It is not only morally wrong, it is also economically
unsustainable.”   — Bernie Sanders

For more information on Bernie Sanders' positions on Puerto Rico, go to https://berniesanders.com/issues/puerto-rico/. And for information on how to
participate in the Democratic caucus, email partidodemocratapr@gmail.com
or go to https://www.facebook.com/dpcpr/ and https://www.reddit.com/r/PRFor
Sanders/.

Healthcare Crisis Demands More Efficient Managed Care

Editorial

Caribbean Business

Puerto Rico's economy is having serious problems and none of the government
agencies is safe, not even the Health Insurance Administration (ASES by its
Spanish acronym). Such is the severity of the fiscal crisis that the government
agency in charge of managing the Government Health Plan (GHP) faces the real
possibility that it will have to curtail services or release as many as 850,000 of
the 1.4 million medically indigent beneficiaries who are currently covered by
healthcare reform.

It is astonishing that this most recent version of healthcare reform would face
the possibility of insolvency when the government had assigned to it about $6.4
billion stretched across six years when the Patient Protection & Affordable Care
Act (ACA, or Obamacare) was signed into law in 2011. How did we get into this
insolvent mess?

Several factors have contributed to the potential deficit. In simple accounting
terms, prerequisites of Obamacare, which mandates state coverage for all those
who are medically indigent with catastrophic illnesses, reportedly have driven the
costs of compliance as high as...[CONTINUE READING]

New VAT System Too Complex

Editorial

Caribbean Business

Puerto Rico Treasury Secretary Juan Zaragoza has his hands full these days
as he is trying mightily to explain the reasoning behind Gov. Alejandro
García Padilla's new tax reform, which calls for a transformation to a value-
added tax (VAT, or IVA by its Spanish acronym) system. Zaragoza's job
couldn't be more difficult as the measure is drawing the broadest opposition
that this newspaper has witnessed in a long time.

Important mayors belonging to the incumbent governor's Popular Democra-
tic Party (PDP), such as those of San Juan, Caguas and Mayagüez, as well as
former PDP Govs. Rafael Hernández Colón and Aníbal Acevedo Vilá have
come out against the VAT proposal; their voices of dissent are joined by
leaders from the opposition...[CONTINUE READING]