Puerto Rico Governor Ricardo Rossello submitted a revised fiscal plan for the bankrupt island which sees zero debt service payments over the next five years, and lays out the initial process for the privatization of the island's beleaguered power utility.
The previous fiscal plan, which was certified by the federally appointed oversight board in March 2017, covered a 10-year period and allocated around $787 million per year for debt service payments. That amounted to less than a quarter of the $3.5 billion owed to creditors every year.
After the destruction of Hurricane Maria, it was decided that the fiscal plan needed to be revised to reflect the new reality the already cash-strapped island was facing. The revised fiscal plan for Puerto Rico's central government covers a reduced time frame of five years and allocates nothing to creditors, while guaranteeing retirement pensions.
An addition to the revised fiscal plan is an expense for Title III proceedings, which is the bankruptcy-like that a federal judge is currently overseeing for the island's outstanding bond indebtedness of roughly $73 billion, or nearly $17,000 debt per capita.
Moody's Investors Services notes that specific bondholder recoveries "will likely emerge after judicial proceedings or negotiations, and would be determined by economic projections and relative strengths of bondholder claims," said Ted Hampton, VP and Senior Credit Officer at Moody's.
The Commonwealth expects expenses for its government to increase over the five-year period, while projecting a cumulative decline in population of 19.4 percent over the same time period.
The plan also includes an injection of $35.3 billion in federal aid from FEMA, although it anticipates receiving "significantly more" and has previously requested $94.4 billion in Federal Disaster Relief Assistance.
Approximately 51 percent of that federal aid is intended to be allocated to repair, modernize and strengthen the island's crumbling water and power infrastructure.
However, even after all government transformation initiatives and structural reforms are implemented, Puerto Rico still foresees have a funding gap of $3.4 billion through fiscal 2022. As a result, the island's government believes a liquidity facility will be needed to bridge the gap.