Archive for November, 2015

Puerto Rico Conversations

November 5, 2015
James Colby

James Colby, Van Eck Global

Jim Colby, Senior Municipal Strategist and Portfolio Manager at Van Eck Global, was the leader of a panel discussion on Puerto Rico at Smith’s High-Yield Conference in Greenwich, Connecticut on October 1. Mr. Colby started the discussion with a brief introduction of the panelists.

Jim Colby:
The interesting feature about this particular panel is that we’re represented by two on the investment side — myself from Van Eck High Yield ETF and John Schorle of Invesco.

We have the insurance industry covered with Tom Weyl from National Public Finance Guarantee.  And, we have excellent legal representation  with Bill Kannel, partner at Mintz Levin in Boston.

We have a past president of the Puerto Rico GDB, Jorge Irizarry. Jorge served as president of the Government Development Bank for two terms and 8 years.

And, we have Terry Smith, founder of this conference 10 years ago and CEO of Smith’s Research & Gradings.

Manny Mirabal is from Puerto Rico and a principal of Gray Global Advisors in Washington, D.C.  Manny has spent well over 20 years of his career in and around The Hill, in and around Washington D.C., with some influential and important people in congress and on island in Puerto Rico.

So, the topic is almost like a sports page, because every single day, there are headlines. To just throw out a couple, I happened to see on Bloomberg today, which I’m sure our analysts will be talking about and discussing.

One headline reads:
Puerto Rico Talks Are Positive and Ongoing.

[AUDIENCE LAUGHTER]
Puerto Rico Working to Obtain Liquidity by November

[AUDIENCE LAUGHTER]
There is another positive headline: Puerto Rico to Introduce Professional Services and Business Tax.

In fact, Manny corrected me in interpreting this headline because it has already passed and I understand that it has in fact, been signed. So, just today those three headlines popped up on Bloomberg along with many more issues and topics.

I would like to invite Manny, who has just come state-side from San Juan to give us a little picture as to exactly what discussions have been had.  And, maybe give us a quick update on the bill that was just signed by the government.

Manny Mirabal:
I’m a government relations specialist and I basically represent clients before various bodies, whether it’s here in Washington, DC and New York or in Florida.  And unfortunately for me, since February, in Puerto Rico dealing with a lot of what’s being talked about it here today.

I have also been dealing with a number of other items related to bills that are being passed, which all converge and dovetail in some way with the fiscal situation in Puerto Rico.

Last year when I was here, I made a comment that I felt that Lisa Donahue [restructuring agent] was going to find out soon that she was in over her head.  Unfortunately, for Puerto Rico, that came to pass, but she made a hell of a lot of money by extending her contract.

If there was one door in a room with four walls, they’re sure gonna have a tough time finding their way out that door. Because those four walls have to do with politics on one side, unions who control employees — everything from vacation time, work time, break time, bonus time, whatever. And the rates that are being charged to individuals in Puerto Rico for a record service at PREPA, which had been helped tremendously because of lowering of the price of oil.  But it doesn’t take away the fact that as of today, PREPA is still negotiating to try to settle its $9 billion worth of debt.

The entities that hold/control their bonds expect to get paid.  The governor started out by saying, we are going pay our debts and there’s a general constitution obligation for GO bonds that they get paid first.

One of the things that’s so interesting about what the governor and his people have done up till now — they passed four sets of increases in taxes. The governor very conveniently, did a number of things, including increasing taxes four times since January: crude oil tax, increase the tax on consumption, currently impose new business to business (B2B) taxes, and a couple of others, all in an effort to raise additional dollars.

He also lowered some government spending.  So all told, that saved about a billion dollars.  The one thing he did not do was related to the unions.  He’s consistently said, I will not layoff anyone. It is the reason the last governor didn’t win reelection. He layed-off about 20,000 people to close the gap, because the government was employee heavy.

And this governor, learned a lesson from that, because he is trying to beat the last guy.  And he’s consistently said, I’m not laying anybody off, that is clearly part of Puerto Rico’s problem.

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