NEW YORK--(BUSINESS WIRE)--OppenheimerFunds, Franklin Advisers and the First Puerto Rico Family of Funds sent the following letter to Legislators of the Commonwealth of Puerto Rico on February 24, 2016:
February 24, 2016
Honorable Representative Rafael “Tatito”
Hernández and Legislators of the
Commonwealth of Puerto Rico
Re: Puerto Rico Sales Tax Financing Corporation (“COFINA”)
Dear Representative Hernández:
As two of the largest retail mutual fund families in the United States, OppenheimerFunds and Franklin Advisers represent retail shareholders (individuals, small businesses and others) that reside in all fifty states and Puerto Rico. For decades, OppenheimerFunds and Franklin Advisers and their funds have invested in Puerto Rico on behalf of hundreds of thousands of retail investors, providing financing for much of Puerto Rico’s capital needs, including schools, hospitals, highways, water systems, power plants, firehouses and police stations.
Likewise, the First Puerto Rico Family of Funds (the “First Puerto Rico Funds”) are investment companies that offer shares in mutual funds exclusively to individuals and businesses that reside in the Commonwealth. These funds are primarily held by ordinary people saving for long-term investments such as college for their children and retirement income. The First Puerto Rico Funds are required by law to invest two-thirds of their assets in Puerto Rican securities and have invested significant amounts of money in Puerto Rico and its public corporations.
As retail municipal bond investors with over $10 billion invested in Puerto Rico and its public corporations, Franklin Advisers, OppenheimerFunds and the First Puerto Rico Funds have long-term horizons for our investments and loans. We view our interests to be closely aligned with those of the people of Puerto Rico.
Over the last twenty months, funds managed by OppenheimerFunds and Franklin Advisers have worked with the Commonwealth as the majority members of the Puerto Rico Electric and Power Authority (“PREPA”) Ad Hoc Bondholder Group to structure a revitalization solution that benefits the people of Puerto Rico by reducing debt service costs and helping PREPA to regain its footing in the capital markets and be able to provide reliable electricity at stable rates. The underlying foundation for the consensual PREPA revitalization solution is a securitization of PREPA’s debt obligations. Securitization is a trusted legal structure in the municipal bond market and can act as an excellent tool for enhancing liquidity and funding capital improvement needs, thereby stimulating economic growth.
We are encouraged by recent comments that you and other key legislators have made regarding the enormous value to the Commonwealth that financing debt through a securitization at both PREPA and the Puerto Rico Aqueduct and Sewer Authority (“PRASA”) can offer. Given Puerto Rico’s current lack of access to the capital markets and the deteriorating fiscal situation, securitization is one of the very few alternatives remaining for the Commonwealth to recover its path to economic recovery and growth. The securitization authorized by the recent PREPA Revitalization Act and the potential PRASA securitization you have proposed are examples of the path to follow.
The COFINA structure, which securitizes Puerto Rico’s sales tax revenue, is in effect the “Super Bond” structure that the Commonwealth should be looking to use and support. This structure has features similar to the Municipal Assistance Corporation (“MAC”) that was created to provide a viable financing mechanism for New York City to gain market access amid a fiscal crisis in the mid 1970’s. The Commonwealth has touted the strength and inviolate nature of the COFINA structure for a decade, as shown in various examples from Commonwealth presentations, investor conference calls, and the recently released draft unaudited financial statements for fiscal year 2014 (to view these documents, visit this link: http://www.lettertopuertoricolegislatorsattachments.com/Enclosure.pdf). Any attempt by the Governor and his advisors to weaken the COFINA structure would seriously impair the Commonwealth’s ability to use the securitization model to aid in its recovery by undermining the Commonwealth’s ability to obtain investment grade ratings for the securitization transactions contemplated for PREPA and PRASA, as well as any other similar transactions contemplated for the future.
Some speculative purchasers of Puerto Rico’s debt, those who have purchased securities in recent months at substantial discounts, will try to offer band-aid solutions to Puerto Rico to help themselves make a quick profit at the expense of other creditors and, ultimately, at the expense of Puerto Rico itself. Luckily, these speculative investors represent only a small portion of Puerto Rico’s bondholders. Most of Puerto Rico’s creditors, including Franklin Advisers, OppenheimerFunds, the First Puerto Rico Funds, and the hundreds of thousands of American citizens who reside in Puerto Rico and throughout the United States and have invested in Puerto Rico and its bonds have a broad vision and long-term horizon and want to help Puerto Rico’s economy grow. We welcome the opportunity to work with you and the legislators of Puerto Rico to advance our common cause of finding solutions that will aid the long-term economic growth, well-being and investment in Puerto Rico.
|Daniel G. Loughran|
|Senior Vice President, OppenheimerFunds, Inc.|
|Franklin Advisers, Inc.|
|SVP, Franklin Advisers, Inc.|
|First Puerto Rico Family of Funds|
|President, First Puerto Rico Family of Funds|
Enclosure: Commonwealth of Puerto Rico Statements Regarding the COFINA Structure (excerpts of investor presentations, conference calls, and FY2014 draft unaudited financial statements). To view these documents, visit this link: http://www.lettertopuertoricolegislatorsattachments.com/Enclosure.pdf.