Puerto Rico officials voiced optimism that the island's biggest utility can restructure its debt and that a plan to boost taxes will alleviate the Commonwealth's budget problems.
The comments came Tuesday after the Puerto Rico Electric Power Authority announced Monday night that its creditors had agreed to extend its forbearance agreements by 15 days to mid-April. PREPA is weighing several proposals by its creditors, Government Development Bank for Puerto Rico president Melba Acosta Febo said Tuesday. People familiar with the talks have said that the bondholders are willing to accept reduced debt payments in the near term and are offering to lend PREPA additional money.
"The parties agree that it is best to continue the positive dialogue toward creating a workable solution for the transformation of PREPA for the benefit of all stakeholders, including its creditors," PREPA chief restructuring officer Lisa Donahue said in a press statement announcing the extension.
"We fully expect PREPA to successfully restructure and optimize its operations through this process," said PREPA executive director Juan Alicea Flores.
PREPA has over $8 billion in bond debt outstanding.
Puerto Rico Senate Finance Committee chairman José Nadal Power said that while Puerto Rico would probably not adopt the 16% value added tax proposed by Gov. Alejandro García Padilla, "I'm fairly certain that we will pass a VAT that will be revenue positive to balance the budget."
Nadal Power spoke at "The Puerto Rico Turnaround" conference sponsored by DebtWire in New York Tuesday.
Puerto Rico's big problem is the underground economy that avoids taxes, Nadal Power said. The anticipated consumption tax will help collect taxes.
"I feel very positive about how the conversations [concerning the commonwealth's tax reform] are developing," Nadal Power said.
Shifting Puerto Rico's tax system to one more focused on consumption will give the commonwealth a source of income that, compared with the current system, will be more stable than seasonal, he said.
A proposal by three members of the Puerto Rico House of Representatives to amend the constitution to allow for a restructuring of the commonwealth's debt will not pass, Nadal Power said. Nor will a proposal to sharply increase commonwealth taxes on bond interest.
García Padilla has said he won't sign any measure to restructure commonwealth debt or increase the tax on commonwealth bond interest, Acosta Febo said.
Before the Puerto Rico Infrastructure and Finance Authority sells a bond up to $2.95 billion, the government will complete its tax reform, Acosta Febo said. This will give bond buyers more certainty about Puerto Rico's financial situation and make them more likely to buy the PRIFA bond, even though it will be supported by a recently enacted oil tax increase.
After the conference she said that she anticipated selling the bond in May. She was unsure if any portion would carry insurance.
The Puerto Rico Aqueduct and Sewer Authority will also sell a $600-to-$700 million bond around May, Acosta Febo said.
A bill has been presented in the Puerto Rico legislature that would allow, in times of financial crises, the GDB to appoint emergency managers for the municipalities and public corporations. The Senate is in favor of the measure but the House is not, Acosta Febo said, adding that García Padilla doesn't consider the bill to be a priority.
