AAFAF, oversight board publish adjustment plan mediation material

By The Star Staff

As required by the federal court, the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials), and the Financial Oversight and Management Board (FOMB) have published materials used during the ongoing mediation toward a Plan of Adjustment for the commonwealth of Puerto Rico that shows a dispute over the government’s bank accounts.

The documents were revealed Saturday, a day after the oversight board approved several reapportionment requests made by the commonwealth and an action plan detailing the use of $8.3 billion in federal recovery funds at a meeting.

The dispute centers around the amounts that are not restricted and could be used to pay debt.

The creditors said increased commonwealth cash balances and substantial savings on contractual debt service have not translated into increased cash available for creditors. Since the February plan support agreement that has since been dropped, the commonwealth has accumulated $2.7 billion in cash. Nonetheless, the latest offer made by the commonwealth to the creditors reduces the amount of debt payments.

“Notwithstanding the commonwealth’s significant cash build over the last year, the FOMB’s latest proposal only increased cash consideration to creditors by $123 million,” the creditors said. “Even if one were to credit the FOMB’s assumptions that certain cash is restricted, there is clearly at least $3.7 billion of additional cash available for distribution.”

The oversight board still has not identified the legal foundation for its conclusion that $13.8 billion, nearly 60 percent of the commonwealth’s total balance sheet, is restricted, the creditors argued. According to the board, the amount of restricted cash increased from $11.2 billion to $13.8 billion between June 30, 2019 and June 30, 2020.

“But the FOMB did not review or provide sufficient justification on $8.3 billion of cash, which is more than half of the total amount deemed restricted — and instead just assumed it is unavailable,” the creditors said. “Successive proposals and fiscal plans from the FOMB have increased the cash amount necessary to fill up an ever-growing rainy day fund. The commonwealth’s working capital requirement has increased progressively from $800 million to $1.1 billion to $2.0 billion to $2.5 billion over a short time frame without explanation or rationale.”

“The FOMB also calls for $650 million in Emergency Reserves, $2.2 billion in CARES [Coronavirus Aid, Relief, and Economic Security] Act funds which can be used for COVID-19-related Commonwealth expenses and $600 million in ‘cost match reserves.’ All told, at least $6.0 billion of cash is reserved for working capital or emergency use,” the creditors said. “It is unsurprising, then, that Puerto Rico’s cash balance to budget ratio of 108 percent is nearly three times that of its peers as identified by the FOMB.”

The oversight board replied that as of June 30 of this year, total public entity cash and cash equivalent was $24.7 billion. About $15.9 billion of that amount was held by central government agencies. The remaining $8.8 billion belonged to public corporations, including the Puerto Rico Electric Power Authority, the Puerto Rico Aqueduct and Sewer Authority, and the University of Puerto Rico.

The oversight board’s material illustrates that $5.4 billion of central government cash is restricted, including about $3.8 billion of COVID-19 related federal funds. After accounting for certain other funds that are potentially unavailable, for example unemployment funds, the board said it estimates that the government held $10.3 billion of unrestricted cash as of June 30.

“About $6 billion of that unrestricted cash is contemplated as cash to creditors in the latest proposal for an amended Plan of Adjustment, $1.5 billion is allocated to restore payments to retirees who lost their employee contributions in the System 2000 government-defined contribution plan, and about $650 million is reserved for unions, retirees, and other claims,” the oversight board said. “The remaining funds were the minimum cash balance for government operations and other critical needs, such as interim disaster funding.”

Restricted cash includes funds received from the federal government or restricted by federal law or regulation for specific uses, including CARES Act funds, funds belonging to third parties and held by government entities in custodial or other segregated accounts, and other funds that are legally restricted.

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