Marine Diver. The San Juan Daily Star. Monday, November 9, Self-winding movement. Water-resistant to 300m.

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1 2 Monday, November 9, 2015 Marine Diver Self-winding movement. Water-resistant to 300m. 18 ct rose gold case. Also available in stainless steel. U LY S S E - N A R D I N. C O M The San Juan Daily Star

2 GOOD MORNING The San Juan Daily Star, the only paper with 3 November 9, 2015 News Service in English in Puerto Rico, publishes 7 days a week, with a Monday, Tuesday, Wednesday and Thursday edi on, along with a Weekend Edi on to cover Friday, Saturday and Sunday. PREPA Customers Will Pay for Debt Restructuring Via Transition Charge By EVA LLORENS VELEZ llorenseva4@gmail.com Local Mainland Business Interna onal Viewpoint Entertainment Travel INDEX No cias en Español Legal No ces Sports Games Horoscope Cartoons The Puerto Rico Electric Power Authority (PREPA) revitalization bill as well as the recently enacted accord between PREPA and three of its four bondholder groups will not only allow creditors to intervene in the revision of utility rates, but also customers will have to pay a new transition charge on top of what they pay for energy consumption. In addition, PREPA will be allowed to increase rates temporarily in the event of an emergency. The new charge comes as a result of PRE- PA s restructuring of its $9 billion debt. PREPA rates will be established through a rate structure, as approved by the Energy Commission, the agreement reads. In addition, a portion of PREPA s existing debt will be restructured using a securitized debt structure that will require the imposition of a surcharge, or Transition Charge, in accordance with the Recovery Plan. PREPA rates plus the Transition Charge will constitute the full charge to PREPA customers, but the Transition Charge will not be subject to the jurisdiction of, or review or approval by, the Energy Commission. The additional charges will be formulated and presented by the Puerto Rico Electric Power Authority Revitalization Corp. that will created by the law. The accord says the new utility rates must be approved before March 2016 or it will be a cause to annul the agreement. The final review of the rates will be conducted by the Energy Commission. The Commission shall conduct the following expedited and extraordinary procedures to evaluate (i) the petition for approval of PREPA s rate structure to be filed by PREPA and, separately and independently, (ii) the petition for approval of the calculation methodology for the Transition Charges and the Adjustment Mechanism to be presented by the Puerto Rico Electric Power Authority Revitalization Corp. as contemplated in Chapter III of the PREPA Revitalization Act, the accord states. Starting next year, customers will see a new bill design that will allow them to see how much they are paying for the Transition Charge, Base Rate Charge, Fuel and Purchased Power Cost Adjustment, and Contribution in Lieu of Taxes and Subsidies. The scope of the Commission s review of the rates will be limited to what is based in the Restructuring Resolution and all other items submitted by the Corporation, and also to determining that the calculation methodology for the Transition Charge and the Adjustment Mechanism included in the Restructuring Resolution complies with criteria and principles for distributing financing costs among customer classes. PREPA has already said it will propose a rate hike. It has been said the hike could be about four cents. The share of financing costs to be recovered from each customer class shall be calculated based upon the historic energy (kwh) usage of each class of customers, as such information is provided by PREPA, and as the Corporation shall have determined in a non-capricious or arbitrary way, the accord said. Once the share of financing costs to be recovered from each customer class has been calculated, the transition charges for customers (other than residential customers) will be based upon historic energy usage. Transition charges Continues on page 4

3 4 Monday, November 9, 2015 The San Juan Daily Star From page 3 for all residential customers will be a per-capita charge based on average historical energy usage for all residential class customers, as such information is provided by PREPA, the agreement says. The evaluation process to be conducted by the Commission must be a transparent process, and will consider the urgent need to implement an agile, flexible, informal process so that citizens may provide their testimonies and express their opinions in a public hearing or submit them in writing during a specific period of time to be determined by the Commission within the expedited process established in the agreements. In the event of an unusual occurrence, such as a storm or other unforeseen event resulting in higher cash costs, PREPA may seek an emergency rate adjustment. PREPA may temporarily (for no more than 180 days) increase the rate in the event of an emergency, including natural disasters, environmental emergencies and others. The emergency rates will be presented to the Energy Commission and will become effective immediately upon such filing. If such emergency rates need to become permanent, PREPA shall present a rate case before the Energy Commission and begin any process for such revision before the expiration of the 180 days. Governor Prepared to Convene Special Session to Propel Debt Talks By EVA LLORENS VELEZ llorenseva4@gmail.com Gov. Alejandro García Padilla is open to convening an extraordinary or special session to pass bills that are key to debt negotiations, La Fortaleza Public Affairs Secretary Jesús Manuel Ortiz said. He also reiterated previous remarks made by La Fortaleza Chief of Staff Víctor Suárez to the effect that there is no risk the government may close in November, but that officials are keeping an eye on the numbers for December, when the Government Development Bank must pay debt service of around $300 million. Ortiz said García Padilla has not ruled out the possibility of convening a special session because the Legislature only has until Nov. 12 to pass bills, including the Puerto Rico Electric Power (PRE- PA) Authority Revitalization Law, which was filed last week. An agreement signed by PRE- PA with three of its four creditor groups says the bill has to be approved by both chambers by Nov. 20 or the accord will be forfeited. The adoption of the measure will help PREPA negotiate an agreement with its monoline insurance companies. Lawmakers have already said they want to evaluate the bills in public hearings. The Legislature also has to pass the bill that would create the Fiscal Supervision and Economic Recovery Board because it is necessary to facilitate negotiations to restructure around $47 billion of the $70 billion debt. In that sense, Ortiz said, the executive branch wants the Popular Democratic Party -- in an expedited process as permitted by law -- to fill the vacancy of the late Rep. Carlos Vargas, Jesús Manuel Ortiz who died last week following a car crash. Ortiz also said the government is no longer at risk of a partial closing in November but that it is watching revenues for December. We are doing everything possible so that in December we will not come to that, he said. Ortiz said that if the government has to conduct a partial closure in December, it would be notifying employees so that they can prepare. He insisted that the government has been transparent about its numbers and that the fiscal state of the government can be ascertained through the Krueger and Conway MacKenzie reports.

4 The San Juan Daily Star Monday, November 9, US Rep. Velázquez Proposes Crackdown on Hedge Funds By EVA LLORENS VELEZ llorenseva4@gmail.com Rep. Nydia Velázquez (D-N.Y.) has introduced legislation to crack down on the hedge funds that she says have contributed to Puerto Rico s financial crisis. The information was provided late last week by The Bond Buyer. The legislation, House Bill 3921, the Hedge Fund Sunshine Act, amends the Securities Exchange Act of 1934 to require hedge funds to file with the U.S. Securities and Exchange Commission (SEC) when they acquire ownership of 1 percent of a class of equity securities; the current threshold is 5 percent. Lowering the threshold would provide the public as well as the SEC with more clarity on a fund s holdings and financial positions, according to the legislation. It has become increasingly clear that hedge funds, which have purchased a sizable part of Puerto Rico s debt, are exacerbating the crisis and profiting from the island s misery, said Velázquez, a member of the House Nydia Velázquez Financial Services Committee, in a statement. This bill will allow regulators and the public to see exactly what role these funds are playing in Puerto Rico s financial crisis and in our broader economy. Her bill would also institute a new quarterly reporting requirement for all securities -- both debt and equity -- in which funds hold a 1 percent or greater ownership stake, ushering in the first time these funds would publicly report on their larger debt holdings, including derivatives, according to the report. The measure comes as several media outlets seek to learn the identities of hedge funds that own Puerto Rico debt, information that the island government says it does not have. It also comes as the government is lobbying Congress to help Puerto Rico battle its debt crisis. President Barack Obama introduced a roadmap for congressional action on Oct. 21 that would, among other measures, afford the island the same bankruptcy options as all 50 states. Also pending in Congress is the Puerto Rico Chapter 9 Uniformity Act, which amends the federal bankruptcy code to treat Puerto Rico as a state under Chapter 9. The bill has been referred to the Senate Judiciary Committee. Obama stated in releasing the roadmap that the pending bill to extend Chapter 9 protection to Puerto Rico s municipalities is an important first step, but that because Puerto Rico s crisis is escalating, bankruptcy protection is now needed for the commonwealth [of Puerto Rico] as well.

5 6 Monday, November 9, 2015 The San Juan Daily Star Genuine Economic Recovery Requires Radical Change of Course by Gov t, Economist Says By MARIA MIRANDA SIERRA Economist Gustavo Vélez wrote on his website economiapr.com late last week that the commonwealth may be reaching some dangerous crossroads in the upcoming weeks as it must choose between making payroll for public workers or making general obligation bond payments. Clearly the government already operates, for all practical purposes, in a state of insolvency. Although there is no accuracy on the magnitude of the fiscal hole, we know that it is quite deep, Vélez said. The irony of the matter is that about a decade ago, then Gov. Aníbal Acevedo Vilá experienced a similar situation. At that time, as the fiscal storm clouds were forming, Acevedo Vilá had inherited a budget deficit from the previous government administration, with the bad luck that he had no control over the Legislative Assembly that was run by the New Progressive Party (NPP) majority. Acevedo Vilá had to govern during a shared government, and most if not all of his legislative measures, or those introduced by Popular Democratic Party (PDP) lawmakers, were not passed by the NPP majority. In addition, the resident commissioner at the time was Luis Fortuño an NPP Republican who went on to win election as governor in The financial deterioration led to a government shutdown, on May 1, 2006, and from there to now, the rest is history, Vélez noted. Dozens of taxes have been imposed, billions in federal funds have been assigned, the public debt has doubled, and a decade later the economy has collapsed and the government is bankrupt, Vélez added. A detailed analysis of all of the new money that Puerto Rico has received in the past decade proves that over $60 billion, between new taxes, federal aid and debt issues, has entered the local economy, the economist said. This is equivalent to $6 billion annually, in addition to the $20 billion that already comes in federal transfers [to] the government and individuals, he added. Vélez said that when one takes a look at these figures, one must immediately ask: Where has all this money gone to? That question is a very valid one, he said, as a decade later, the economy continues in a depression without any indication that it will improve. Public infrastructure is deteriorating. Roads and highways are riddled with holes, the Puerto Rico Electric Power Authority (PREPA) generating plants are obsolete, and since the Puerto Rico Aqueduct and Sewer Authority (PRASA) reservoirs had not been dredged for many years, parts of the island have had to endure water rationing amid the worst drought since 1994 (although Gustavo Vélez recent rainfall has since helped fill reservoirs and rationing has been suspended). So where does the money come from? Vélez wrote. The $60 billion is broken down as follows. Half of the money came from public debt issued between 2005 and 2015 that surpasses $30 billion. Interestingly, $23.2 billion came from public corporation emissions, including the Puerto Rico Sales Tax Financing Corp. (COFINA by its Spanish acronym). This last issuer was created, together with the law that enables the sales and use tax (IVU by its Spanish acronym), to provide a source of repayment for extra-constitutional debt. In other words, present money was used to pay off debt acquired in the past, Vélez said. The second largest source of income was collected from the IVU, which since its implementation to this this day has generated $9.688 billion in revenues, out of which $5.035 billion have been used to pay off the COFINA bonds. I clearly remember that when the IVU was approved in 2006, as part of the agreement to reopen the government, many people said that with this [implementing the IVU] the fiscal crisis would end, and ironically it marked the beginning, Vélez said. In 2010, Vélez adds, as part of the strategy to finance the Tax Reform implemented by the administration of then-gov. Luis Fortuño, a controversial tax of 4 percent on foreign companies for commerce between subsidiaries was approved. This special tax was supposed to cease in 2016, but the current administration made an amendment extending it through This tax has generated $8.03 billion from 2010 to the present day, representing an annual average income of $1.61 billion. The obsession with imposing taxes has also extended into the current administration. The current government, to justify the increase in public spending, increased tax rates on corporations from 30 percent to 39 percent, imposed a business tax, and recently increased the IVU from 7 to 11.5 percent, Vélez said. In addition to the IVU hike, a 4 percent tax was implemented on service transactions between businesses, and a crude oil tax and its byproducts went up from $3 to $15, and we estimate that they have had an estimated effect of $1.5 billion in revenues (a conservative estimate). Vélez adds that in addition to the revenues collected through taxes, the federal government sent $7 billion in American Recovery and Reinvestment Act (ARRA) funds and an additional in $4 billion Obamacare funds to finance the health reform. Despite the resources described, we are outraged that the government still operates with recurring deficits and that the economy continues plummeting, Vélez said. However, this has a simple explanation, the dismantling of the productive apparatus as a result of the exit of thousands of industrial establishments has reduced the multiplier effect of production. In addition, he said, the government has used a considerable amount of new resources, not to invest in new public works but rather to finance operational costs, which doesn t increase the economy s capital wealth. Reversing this reality will require a radical change in the strategy, Vélez said. All economic resources and energy have to be reoriented toward the reconstruction of productive infrastructure, Vélez said. The problem is that we [spent] too much time trying to solve a problem of lack of production and economic activity with fiscal and tax measures that, far from resolving the crisis, have further exacerbated it. We still have time to change the path. Vélez added that the kind of radical change to the roadmap called for by the situation must truly make economic recovery the government s priority. The economic recovery will only be viable to the extent to which investment is stimulated, new production is generated and new wealth begins to be produced, Vélez said. The current fiscal policies have only achieved to discourage new production, confiscate resources from the private sector and consumers, and destroy wealth, he said. In our view, the process of economic recovery must have two phases. The first stage should include short-term measures to halt the downward spiral, with a second stage focusing on the rehabilitation of the productive fundamentals required to achieve a sustained economic growth, he said. In the short term, efforts to reactivate the economy must be directed toward increasing private investment, reducing the costs of doing business, and creating a better investment environment for creating new companies.

6 The San Juan Daily Star Monday, November 9,

7 8 Monday, November 9, 2015 The San Juan Daily Star Moody s Report Details How PR s Pain Is Central Florida s Gain By EVA LLORENS VELEZ llorenseva4@gmail.com Puerto Rico s pain is not only Florida s gain but is also boosting the Sunshine State s credit rating, Moody s Investors Service says. Two Florida counties are experiencing credit-positive effects from Puerto Rico s out-migration, as the increase in the labor force supports the expanding economies of Orange County and in Hillsborough County, both of which have high credit ratings, Moody s Investors Service says in a report called Puerto Rico s Pain is Orange County s Gain. The island s out-migration has increased over the past five years, and the employed Puerto Rican population increased by a significant 17.7 percent in Orange County and 31.1 percent in Hillsborough County from 2010 to The influx has fed the counties ongoing economic expansion, a credit positive, Moody s said in a statement. Orange County heavily relies on property, sales and tourist development taxes, all of which have increased since 2012 and are contributing to the county s credit strength, Moody s Associate Analyst Nisha Rajan said in a statement. This economic expansion has increased demand for goods and services, augmented sales tax and other county revenues, and also bolstered the local housing markets. From , this demographic comprised a significant portion of the two counties respective total employed workforce at 12 percent for Orange County and 8 percent for Hillsborough County. The in-migration has also helped Florida surpass New York State as the primary location for Puerto Rican settlement in the mainland United States. The Bureau of Labor Statistics says Florida s unemployment rate decreased to 5.2 percent in September with a labor force participation rate of 58.5 percent, down from an unemployment high of 11.2 percent in January 2010 and a labor force participation rate of 62.1 percent, though the figures are seasonally adjusted. Moody s says Puerto Ricans make up 15.1 percent of employees in Orange County s transportation and warehousing sector. The county is home to tourist destination Orlando. Hillsborough County is home to the cities of Tampa and St. Petersburg. The education and health services sector is another rapidly growing sector in Orange County, where Puerto Ricans make up 13.9 percent of workers. Puerto Ricans, often bilingual, have a competitive advantage in their ability to communicate with Spanish speakers, who make up over 20 percent of Florida s population. Further, Moody s points out that Orange County can manage the growth in its population without detriment to county services, as the median age of Puerto Ricans is relatively young at 30.2, indicating the majority are able to immediately take advantage of the abundant employment opportunities. However, a significant 30 percent of the Puerto Rican population in Orange County is between the ages of 5 and 17, making up 19 percent of this age group in the county. The rise in student enrollment has been addressed in the Orange County School District and Florida s (Aa1 stable) fiscal 2016 Adopted Budget, which increases appropriations 3.3 percent over last year s budget to accommodate the growth. 521 Fernández Juncos, Avenida Puerta de Tierra Tel Horario: lun a dom de 11:00 am a 11:00 pm

8 The San Juan Daily Star Monday, November 9,

9 10 Monday, November 9, 2015 The San Juan Daily Star Authorities Nab 20 Undocumented Migrants During Aguada Landing By The STAR Staff U.S. Customs and Border Protection (CBP) Border Patrol, air interdiction agents and Puerto Rico Police officers apprehended 20 undocumented migrants from Haiti and the Dominican Republic as they disembarked near the western coastal town of Aguada late last week. Migrants continue to put their lives at unnecessary risk by navigating through the Mona Passage not knowing the multiple hazards within the area, Ramey Sector Chief Patrol Agent Ramiro Cerrillo said in a written statement. We reiterate our warning of the perils of making such a dangerous journey. A Ramey Station Border Patrol agent using a mobile surveillance system spotted an overcrowded 25-foot makeshift wooden vessel commonly known as a yola heading toward the Aguada coast. The Puerto Police Department Maritime Unit (FURA, by its Spanish acronym) and CBP Air and Marine Operations were deployed to intercept. The yola vessel made landfall near a communications antenna in Aguada. CBP agents and FURA officers were able to arrest 20 illegal aliens: four Haitian males, 12 Dominican males, three Dominican females, and one juvenile Dominican male accompanied by his mother. The group was transported to the Ramey Border Patrol Station in Aguadilla for processing under federal immigration law. Biometric review of the migrants will reveal if any have prior immigration encounters or any other record. A typical yola used in illegal maritime smuggling ventures arriving in Puerto Rico from the Dominican Republic is an unsafe vessel, generally underpowered with a single outboard motor, and overloaded with a large number of passengers (as an example, a 40-foot yola can accommodate over 100 people). Drug Trafficker Sentenced to 14 Years in Cocaine Scheme By The STAR Staff Carlos Arce López, aka Ferretero, was sentenced late last week to 14 years in prison for conspiracy to possess with intent to distribute cocaine. Last April, Arce López pled guilty to three counts from two separate indictments charging conspiracy to possess with intent to distribute controlled substances. He also pled guilty to money laundering in relation to a drug trafficking crime. His sentencing was announced Friday by U.S. Attorney for the District of Puerto Rico Rosa Emilia Rodríguez. In the first indictment, 20 individuals were charged for aiding and abetting each other and conspiring to possess with intent to distribute in excess of 9,000 kilograms of cocaine aboard American Airlines commercial flights. As part of the conspiracy, convicted felon Wilfredo Rodríguez Rosado, aka Mogoyo, recruited and organized a group of individuals to package, transport and deliver suitcases loaded with kilos of cocaine to the American Airlines cargo area at Luis Muñoz Marin International Airport in Carolina. Moreover, he recruited and organized a group of American Airlines employees to ensure that those suitcases were smuggled onto American Airlines flights destined for Miami and Orlando, Fla. and Newark, N.J. In the second indictment, Arce López participated in a conspiracy in which $800,000 of illegal proceeds were going to be used to purchase over 150 kilos of cocaine in the Dominican Republic to import into Puerto Rico. The defendant s role was to provide the money and to coordinate with other co-conspirators in the importation. Arce López also traveled to the Dominican Republic from Puerto Rico to meet with other co-conspirators to plan and coordinate the transportation of multi-kilogram loads of cocaine by boat. The cases were investigated by the Drug Enforcement Agency (DEA), the Puerto Rico Police Department (PRDP), and the FBI, with the collaboration of the San Juan Municipal Police. The defendant was sentenced by U.S. District Court Judge Francisco Besosa. The case was prosecuted by Assistant U.S. Attorney Olga Castellón Miranda.