ACTUALIZACIÓN: 30/junio/2016:
PROMESA: Firman en ley proyecto que establece junta federal de control fiscal en Puerto Rico

Publicado con permiso de X-Square Capital, Inc.

If you are interested in the subject, we recommend our online seminar Understanding Puerto Rico’s Economic Crisis: Executive, Judicial, and Congressional Responses and Proposals – 2.9 CLE Credit Hours [COME-2016- 909] – Approved by the Supreme Court of Puerto Rico

H.R. 4900 – PROMESA (descarga el proyecto aquí)
OVERSIGHT BOARD ("OB")

• Purpose: provide a method to achieve fiscal responsibility and access to the capital markets.
• Membership: 7 members appointed by the President to 3 year terms.
  – Oversight board can initiate action with 4+ members;
  – 2 members each appointed by Speaker of the House (1 of which must be a resident or have principal place of business in Puerto Rico) & Majority Leader of the Senate;
  – 1 member each appointed by Minority Leader of the House & Minority Leader of the Senate;
  – Puerto Rico Governor, or designee, non-voting ex officio member.
• Completely autonomous from Puerto Rico; not a federal agency;
• All of the government of Puerto Rico and its Instrumentalities’ fiscal plans, budgets, and proposed modification/restructurings, must be approved and certified by the OB:
  – OB will receive constant financial information from the relevant parties and will actively participate in facilitating the development, overseeing progress and adherence to, and, to a degree, enforcing budgets;
  – OB has broad subpoena powers to gather information;
  – If Fiscal Plan presented by the Governor is not deemed compliant, OB can implement its own fiscal plan that will be automatically "deemed approved by the Governor";
  – Same process as above applies to the budgets of the Territory and the Territory Instrumentalities.

VOLUNTARY NEGOTIATIONS

• Voluntary negotiations and agreements must be approved and certified by the Oversight Board;
  – Debt levels must be sustainable and in conformance with the Fiscal Plan
• Preexisting voluntary agreements will be upheld;

BUDGET REDUCTIONS BY OVERSIGHT BOARD

• Oversight board can make appropriate reductions in nondebt expenditures of the Territory and Instrumentalities to ensure compliance with approved budgets and fiscal plan;
  – With regards to Instrumentalities, OB can institute automatic hiring freezes and require approval of contracts in excess of $100,000.

OB DUTIES RELATED TO RESTRUCTURING & DEBT ISSUANCE

• The Territorial Government must complete the Collective Action process prior to receiving a restructuring certification from the OB;
• Timely financial statements must be available for the Territory or Instrumentality seeking a restructuring;
• If the entity receives less than 10% of its revenues from the taxing power of the Territory, it must be insolvent;
• The priority of claims as established by law must be respected;
• Restructuring certifications require at least 5 OB board votes (supermajority);
• OB must approve all proposed debt issuances, guarantees, exchanges, modifications, redemptions, repurchases, and similar transactions.

CREDITOR COLLECTIVE ACTION

• OB serves as Administrative Supervisor; modifications can only be proposed by issuer;
• Creditors will be "pooled" depending on the securities/claims they own:
  – Each bond issuer must have at least one "pool";
  – Pools containing one or more bonds secured by a lien on property are "secured pools" (dedicated revenue streams will be respected);
  – Pools will be established according to the following principles:
• Pools shall be established corresponding to the relative priority of security arrangements of each holder of bonds against each issuer;
• Senior and subordinate bonds will be separated into different pools;
• Commonwealth guaranteed bonds fall into their own pool within an issuer;
• All bonds of the same issuer that have identical rights in security or priority shall fall into the same pool.
• Modifications of pools only allowed after consultation with holders of bonds in the pool;
• All bondholders within a pool must be treated equally;
• Secured Pools retain the liens securing such bonds and the modification does not reduce the outstanding principal amount of such bonds;
• The Administrative Supervisor must certify that the modification "is in the best interests of creditors and is feasible".
• Modifications to a pool can only be made with mutual consent between the issuer and at least two thirds (2/3) of the votes within a pool (amount of votes determined by outstanding principal amount held by each bondholder);
• Qualifying modifications will be binding on all holders of bonds within a pool. However, holders who did not consent to or approve the modification shall receive or retain under the modification "property of a value, as of the effective date of the qualifying modification, that is not less than the amount that such holders would so receive or retain if there were no qualifying modification".

ADDITIONAL OBSERVATIONS

• Expedited consideration in courts of matters related to the act.
• Fiscal Plan must cover not less than 5 fiscal years. Oversight Board must approve Fiscal Plan and Budgets; able to implement own Fiscal Plan and Budgets if those submitted by the Territory and Instrumentalities are not acceptable.
• OB can only be terminated after Puerto Rico regains access to short-term and long-term credit markets at reasonable rates and for at least 4 consecutive fiscal years Puerto Rico has complied with the Fiscal Plan and has had a balanced budget.
• Recent debt moratorium passed by the local government cannot be enforced without creditor consent.
• All debt related cases will be seen in federal court.
• Courts must confirm that any restructuring plan is consistent with the applicable Fiscal Plan and "is in the best interests of creditors..".
• Federal minimum wage reduced to $4.25 for employees under 25 years of age.
• Legal stay implemented against all legal actions, covered by the bill, against the Government of Puerto Rico after December 15, 2015. Such stay will remain in effect until the earlier of February 15, 2017 or the date in which a restructuring case is filed by or on behalf of Puerto Rico.
• Legal stay means that creditors may not exercise remedies or terminate contracts due to violations of certain terms and covenants such as events of default, coverage, etc., so long as the stay is in place.
• Legal stay only against Government of Puerto Rico, its employees and directors, and the OB.
• Expedited federal permitting process for Puerto Rico agencies with Critical Projects.