Like Houston in the wake of Hurricane Harvey, the situation in Puerto Rico post-Maria is an unmitigated disaster. The majority of people’s homes have been wiped off the map; most of the island is still completely without power; food, water, and other resources are in dwindling supply; the prospect of a major relief effort on behalf of the president* already appears to be a foregone conclusion.
But don’t worry! Help is on the way! Just don’t read the fine print:
A group of bondholders, who own a portion of Puerto Rico’s massive $72 billion debt, has proposed what they are calling relief – but in the form of a loan. So they’re offering a territory mired in debt the chance to take on more debt. […]
Prior to this announcement, only three of the 51 creditors had so much as donated relief funds to charity or offered sympathy for island residents, all of them banks who actually have to face consumers, and so are a bit more adept at handling public relations. No creditor had supported debt relief.
Of the 51 creditors contacted by The Intercept, only Citibank, Goldman Sachs, and Scotiabank have pledged no-strings-attached money for Puerto Rico and other Caribbean islands, in the form of donations to relief organizations totaling $1.25 million. Citi has also waived certain fees for citizens within disaster zones. […]
The Shock Doctrine is the gripping story of how America’s “free market” policies have come to dominate the world…using the public’s disorientation following massive collective shocks – wars, terrorist attacks, or natural disasters – to achieve control by imposing economic shock therapy.
Never ones to let a good crisis go to waste, Puerto Rico’s bondholders are using this disaster as a pretext to fatten their wallets by permanently the territory’s already expansive debt to any effort to stay afloat. The math goes a little something like this:
The Puerto Rico Electric Power Authority’s (Prepa) finances are overseen by an assemblage of their creditors, known as The Prepa Bondholder Group. They’ve offered the utility what’s known as a debtor-in-possession (DIP) loan of $1 billion, along with another swap of $1 billion in current bonds for a second $850 million DIP loan, both of which would become immediately available for returning electricity back to the island. Together, this would amount to roughly $150 million of canceled debt on Prepa’s $9 billion tab.
Doesn’t sound too bad, eh? However, upon closer examination, the whole thing starts to turn rancid fast. Prepa Bondholder Group’s offer is actually worse than the 15% relief offer they made just a few months ago, well before Puerto Rico was decimated by the hurricane. On top of that, the new bonds would be worth more than the old ones, and when combined with accrued interest, Prepa bondholders stand to make a pretty penny for years to come.
On top of that, DIP loans, normally reserved for organizations undergoing bankruptcy, take primacy over Prepa bonds, which already are junior to other debts Puerto Rico has on their books. Acceptance of the loans also opens the door to additional FEMA grants that would increase Prepa’s value, along with the value of their bonds. It’ll save the territory but at the expense of further subordinating what passes for their popular sovereignty.
Puerto Rico’s Fiscal Agency and Financial Advisory Authority clearly had their bullshit detectors set to “Are You Freakin’ Kidding Me?” when this offer was put on the table, and told the Prepa Bondholder Group to kick rocks a few days ago. However, given that federal relief effort for the territory aren’t even on the agenda until mid-October, President* Trump’s totally underwhelming response to Maria’s destruction is going to make Prepa’s offer look more and more appealing as their population struggles to survive.
Odds are that Prepa will get their way, Puerto Rico will get strings-absolutely-attached funding they so desperately require, and the only thing that will sink the territory faster than rising ocean levels will be the mountain of debt they can never hope to escape from under. But hey, at least the lights will turn back on. For now.