Caribbean Business, edition December 17th, 2015 by Latin Media House, LLC

THURSDAY, DECEMBER 17, 2015 | VOL. 1 EDITION 7

Prepa Faces Another RSA Deadline

Is Another Mariel Brewing in Cuba?

UBS Puerto Rico Downsizes Again

Electric Company Deal Vital for Debt Restructuring

Thaw Sparks Mass Exodus

Several Divisions Targeted for Layoffs

PAGE

COVER STORY

TThe Supremes Take up P.R. Bankruptcy Top Court to Examine Recovery Act PAGE

TOP STORY

García Padilla Bows Out PDP Candidates Jockey for Position

Person of the Year: The Debt Monster

With recent surveys showing very low approval ratings and after several months of speculation, Gov. Alejandro García Padilla announced Monday he wouldn’t run for re-election in 2016 to concentrate all his energy and efforts on working to develop the necessary solutions to resolve Puerto Rico’s ongoing fiscal crisis. “Even though I want to with all my heart, I won’t seek my re-election to the governor’s office,” said García Padilla in a

to Puerto Rico’s future. “These times require a greater loyalty to the future than to the present…. These times require having greater loyalty to the people than to the person,” said García Padilla, who at times seemed to be choked up with emotion. His announcement comes at a crucial time for Puerto Rico as the commonwealth is struggling with a $70 billion debt load, a nearly 10-year economic depression and massive out-

prerecorded message Monday afternoon, as ﬁrst reported by CB Online Saturday. Arguing there is an inherent conflict between the time demanded by “the tough decisions that have to be made and the requirements of a political campaign,” he opted out of the gubernatorial race, reiterating his commitment

migration of thousands of local residents to the U.S. mainland. The governor also took the opportunity to denounce, without naming them, several of his fellow Popular Democratic Party (PDP) members for “making solutions more diﬃcult,” thus siding with the opposition.

Puerto Rico Debt Crisis Shrouds Washington, D.C. in controversy Few stories pertaining to Puerto Rico have captured the attention of the mainstream press as the island’s debt—a monster towering $70 billion tall. It loomed large on the horizon long before 2015, but Puerto Rico managed to keep it at bay in 2014 with a $3.5 billion deal put together by the Royal Bank of Canada, Barclays and Morgan Stanley. The bond deal gave Puerto Rico’s government

much-needed liquidity at a 10% yield no less because the island’s credit had been downgraded to noninvestment grade, or junk, in Feb. 2014, just over a year into Gov. Alejandro García Padilla’s ﬁrst term as governor. No sooner had the bond deal been struck when the García Padilla administration’s economic team was seen slapping high ﬁves, their jubilation a sign that Puerto Rico had

obtained essential ﬁnancing, but at a high cost. At the same time, the deal would continue to mask a devastatingly low labor-force participation rate stuck at 40%, outmigration of Puerto Rico’s professional class and young adults to the tune of 1,000 people jetting from the island every week and an economy stuck in a nine-year funk. BY PHILIPE SCHOENE ROURA & ROSARIO FAJARDO PAGE 16-20

BY JUAN A. HERNANDEZ CONTINUES ON PAGE 4

THURSDAY, DECEMBER 17, 2015

Annotation

Contents PICTURE OF THE WEEK PAGE 13

By Heiko Faass EDITOR IN CHIEF

Life After Rebirth at Latin Media House—and Santa’s Gonna Read us, too! Advertising Calendar............................................................................................45 Annotation..............................................................................................................2 Autos ....................................................................................................................29 Banking................................................................................................................12 Book Review .........................................................................................................43 Column.................................................................................................................21 Economy ......................................................................................................... 14-15 Editorial ...............................................................................................................21 Federal Affairs......................................................................................................13 Front Page ...................................................................................................... 16-20 Latin American Affairs .........................................................................................30 Lead Stories ................................................................................................. 6, 8-10 Marketing .............................................................................................................45 Media ...................................................................................................................28 Politics .................................................................................................................42 Poll .......................................................................................................................26 Technology............................................................................................................44 Top Story.............................................................................................................1, 4

FINANCIAL DATA: Stock Comment ....................................................................................................15 Winners & Losers..................................................................................................15

SPECIAL FEATURES: Special Coverage: Supreme Court .................................................................. 22-23 Successful Business Stories & Anniversaries ................................................. 31-36 Wines & Spirits............................................................................................... 37-41

caribbeanbusiness.pr

Volume 1, No. 7 • Thursday, December 17, 2015 PO Box 12130, San Juan PR 00914-0130 CARIBBEAN BUSINESS ® (USPS 313150) is published weekly, except the first two weeks of January, by Latin Media House, LLC, 1700 Ave. Fernández Juncos, San Juan, P.R. 00909-2938. Subscription rates: $45 a year + $4.73 state tax +.45 municipality tax = $50.18; $58 for two years + $6.09 state tax +.87 municipality tax = $64.96; $108 a year for foreign + applicable tax and shipping & handling. Customer Service/Subscription telephone: (787)728-8280, toll free 1-844-723-2351. Fax: (787)728-0195. Circulation Department telephone: (787)728-7670. General telephone: (787)728-3000. Fax: (787)268-1626. Periodicals postage paid at San Juan PR 00936-9998. Postmaster: Send address changes to CARIBBEAN BUSINESS, PO Box 12130, San Juan PR 00914-0130, (ISSN 0194-8326). Entire contents: Copyright ©2015 by Latin Media House, LLC

As you know, we are now doing things quite differently here at Latin Media House. We have set out to build the premier digital media platform for Hispanics in the world. We are starting with changes to the operations and publications in Puerto Rico and proceeding to offer our product on the U.S. mainland. This is a never-ending, exhausting process with millions of details. But we have been working tirelessly and have been blessed with spectacular results: During our first month of restructuring efforts, the inherited operational losses have been stopped and, more often than not, we have discovered true gems among our existing staff, who surprise us day after day with their newfound enthusiasm. Meanwhile, we also have “product” to show. A few issues of Caribbean Business have already been carrying steady changes and improvements, and our first production cycle of our monthly magazines Imagen and Buena Vida is complete. So, now, we hold in our hands products that are entirely produced by a mix of our “new people” with the “existing people,” and the experience has been nothing short of great. The results coming from Santurce, Puerto Rico don’t have to fear being compared with internationally big and established publications. The feedback has been amazing and not only from our friends and readers, but also from what others would consider our competitors. Making a point of looking for allies rather than competitors, we have supplied our recent editions to the chief executives of large publishing houses in the U.S., Latin America and Europe. As a consequence, and rather unexpectedly, our plans for international distribution and expansion will possibly be sped up dramatically. The penetration of the U.S. mainland and

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THURSDAY, DECEMBER 17, 2015

Top Story García Padilla Continued from cover

“The lack of solidarity due to the insensitivity and irresponsibility of an opposition, both external and from within, that prioritizes on its own ideologies and electoral interests makes everything more diﬃcult… makes the slope even steeper,” said García Padilla, who was evidently referring to the group of six dissident legislators in the House of Representatives and the mayors of San Juan, Comerío and San Germán. With García Padilla out of the race, former Secretary of State David Bernier, now the widely expected PDP gubernatorial candidate, is expected to announce his candidacy this very same week. Bernier, who resigned as Secretary of State in October, was adamant in conditioning his availability to run for governor to García Padilla’s announcement not to run for re-election. It was Bernier’s belief that having served under García Padilla as his

second in command (the secretary of State serves as acting governor whenever the governor is out of Puerto Rico or indisposed) “it wouldn’t

Governor reaffirms his commitment to Puerto Rico’s future

little political experience. Although he is a former Sports & Recreation secretary and former director of the Oﬃce of Youth Aﬀairs

isn’t someone emerging from traditional politics that has seemingly prompted many among the PDP leadership to consider Bernier “the

“Even though I want to with all my heart, I won’t seek my re-election to the governor’s office.” —Gov. Alejandro García Padilla

be proper” to challenge him for La Fortaleza. Since his appointment as Secretary of State, Bernier has been identiﬁed as one of the PDP’s rising stars, even though some observers say he has had very

during Gov. Sila María Calderón’s administration, Bernier is mainly recognized for his achievements as an international athlete and as the former president of the Puerto Rico Olympic Committee. Since he

only candidate with a real chance to win [the governorship] in the 2016 elections.” In fact, Bernier has the backing of the PDP’s historical leader, former Gov. Rafael Hernández Colón, and the Puerto

Rico Mayors’ Association, which groups PDPaﬃliated mayors. But Bernier may not be the only gubernatorial hopeful in the PDP. Senate President Eduardo Bhatia also has been regularly mentioned as a possible contender, along with San Juan Mayor Carmen Yulín Cruz Soto. Both Bhatia and Cruz Soto have yet to make an announcement on whether they will run for La Fortaleza. As recently as last week, Cruz Soto publicly stated she was in the process of reconsidering her own political future, hinting at the possibility of running for governor if García Padilla dropped out. However, that possibility has been quickly dismissed by her closest collaborators, who reiterated what has been an open secret; that Cruz Soto’s sights are set on the 2020 elections. As for Bhatia, even though he has kept his relation with the governor civil, it is also an open secret that he is very dissatisﬁed with García Padilla’s actions and decisions and has expressed to some in his inner circle “anyone can

do better,” when asked if Bhatia thought he could be a better governor. Bhatia has also been mentioned for the post of Resident Commissioner, not only because of his academic background— with degrees from Princeton and Stanford—and political connections in Washington, D.C., but also because he reportedly isn’t considered the best PDP candidate for the governorship by some inﬂuential party leaders. Regardless of the reasons for sending Bhatia to Washington, a Bernier-Bhatia ballot is considered a strong ticket among the PDP faithful. The only hurdle left in the PDP race would be Bernier himself, who reportedly prefers PDP Sen. Ángel Rosa, chairman of the Senate Treasury & Public Finance Committee, over Bhatia. Neither Rosa nor Bhatia have expressed whether they will seek re-election as senators or run for another oﬃce. �

—Assistant Editor Rosario Fajardo and CB Online Staﬀ contributed to this story.

THURSDAY, DECEMBER 17, 2015

Lead

Prepa to secure another extension to its restructuring deal while it continues to wait for special legislative session

Prepa Working on Another ‘Deadline’ BY LUIS J. VALENTÍN & PHILIPE SCHOENE ROURA

l.valentin@cb.pr; p.schoene@cb.pr

Guess what? The Puerto Rico Electric Power Authority (Prepa) has been negotiating this week yet another extension on a preliminary restructuring deal with two of its main creditor groups. And judging by the utility’s success so far in achieving these extensions, it is highly likely it would get the extra time, sources close to the matter told Caribbean Business. On Tuesday, Dec. 8, 2015, Prepa announced it had secured an extension until Thursday, Dec. 17, to several cutoﬀ dates under the restructuring support agreement (RSA) struck with fuel-line lenders and a group of bondholders. According to a statement released by the utility at the time, it was continuing to negotiate with its monoline bond insurers to get them onboard with the deal, and was waiting for lawmakers

to approve the Prepa Revitalization Act—the legislative framework that would materialize the RSA. However, with no signs of progress on either front as of presstime Monday, “[Prepa does] not expect anything to happen formally this week—beyond extending the RSA again. I think there is good faith and an interest in striking a deal on all sides,” a source said. Yet, if Prepa wants to keep alive what still is a preliminary deal with some of its creditors, the Legislature would have to promptly move on the Prepa bill—the sooner, the better. But as of Monday, uncertainty over the legislation continues to cloud the issue, with no clear sign as to when Gov. Alejandro García Padilla may ﬁnally decide on whether to convene Puerto Rico lawmakers for a special session to consider the Prepa bill. “Securitization needs to happen [for the deal to hold] and the

Revitalization Act is essential to that. Without it, we would have to start from scratch with yet

Puerto Rico politics. It is a complicated deal,” a source added. Speaking last week

Prepa Chief Restructuring Oﬃcer Lisa Donahue

If Prepa wants to keep alive what still is a preliminary deal with some of its creditors, the Legislature would have to promptly move on the Prepa bill—the sooner, the better.

another deal. The creditors are giving Prepa room for the measure to make it to the ﬂoor, and they realize how messed up things are right now within the context of

before leaving to Washington, D.C.—in a lastditch eﬀort to secure Congress’ action by year’s end over Puerto Rico’s ﬁscal crisis— García Padilla said, “with

all probability, contrary to some reports, there will be a special session [for the Prepa bill]. I would convene [it] at the right time, when it is beneﬁcial for the commonwealth. And there is a lot of strategy into that.” If the plan is to call the session before 2016 kicks in—along with a $300 million debtservice payment for Prepa due Jan. 1—there would be less than two weeks for the Legislature to act on the Prepa bill. “And frankly, La Fortaleza hasn’t given any indication of whether [the governor] will be convening the extraordinary session,” a source said Monday. Facing the Jan. 1 payment, moving forward on the legislative front before year’s end could prove positive for the utility’s restructuring eﬀorts, as “Prepa needs the liquidity and the monoline insurers don’t want to have to shell out all of the money,” the source said. However, while sources had previously told Caribbean Business that lawmakers had been

notified that the special session was a nogo—which La Fortaleza denied—it is still unclear what is delaying the governor’s decision to schedule the session, besides pointing to “strategic considerations” in determining a date. Sources added there are concerns over support for the bill, as it currently wouldn’t have enough votes to secure legislative passage. Moreover, extensive amendments would have already been introduced by majority lawmakers, something that is causing serious concerns to the utility’s restructuring team as it may hinder the RSA. Prepa Chief Restructuring Officer Lisa Donahue previously stressed to Caribbean Business the importance of approving—with minor changes—the proposed legislation for the restructuring agreement to hold. However, several majority lawmakers, including Senate President Eduardo Bhatia, have indicated the bill—if approved— would face significant amendments. �

THURSDAY, DECEMBER 17, 2015

Lead Another Mariel in the Making? BY JUAN A. HERNÁNDEZ

As the normalizing of diplomatic relations between the U.S. and Cuba draws nearer, the inﬂux of Cuban immigrants seeking to reach U.S. soil or Latin American countries threatens to turn into a mass emigration similar to the 1980 Mariel boatlift. However, contrary to Mariel and to what has been the historical route for Cubans émigrés, the preferred

course now is by land, according to media reports. As of November 2015, some 3,000 Cuban immigrants on their way north have gathered at the Costa Rica-Nicaragua border waiting for the Nicaraguan government to allow them passage. Nicaragua, which had been acting as a receiving country for Cuban immigrants detained in Costa Rica, changed its policy earlier that month

and now requires Cuban nationals to obtain a visa before reaching the border or any port of entry. Immigrants arriving at the borders without visas are being turned back to Costa Rica and/ or their entrance to the country blocked. According to Costa Rica’s Immigration Administration, the number of Cubans arriving to the country has spiked from about 50 in 2011 to 12,166 from January 2015

to September 2015. Immigration Administration oﬃcials have said Cuban immigrants arriving to Costa Rica come through Ecuador, where there has been no visa requirement to enter the country since 2008. That is, up until Dec. 1, 2015, when the Ecuadorian government started requiring visas only for Cuban nationals entering the country. “Our commitment in San Salvador was that starting on Dec. 1, Ecuador will require visas from Cuban citizens, not because we have something against Cuba…. We do this to stop the

human rights violations and the loss of lives,” said Deputy Foreign Minister Xavier Lasso, referring to negotiations at the Sistema de Integración de Centroamérica meeting on Nov. 24, 2015, in El Salvador. Cubans who want to reach the U.S. ﬂy to Ecuador and then travel by land and sometimes by air, through Colombia and Central America until reaching the U.S.Mexico border, according to media reports. Once in Ecuador, most of these immigrants, who have had the means to buy a plane ticket and maybe some additional money

sent by family and relatives living in the U.S., fall prey to smugglers oﬀering to transport them as far as their money could get them in their journey north. For the 3,000 Cuban immigrants now camped in the town of Peñas Blancas, near the border with Nicaragua, the journey seems to have ended in Costa Rica. “We warned this could happen…. It’s not as if this problem suddenly came into being and now we are taking action. The existence of this problem has been made visible in the clearest terms after a Continues on next pagge

THURSDAY, DECEMBER 17, 2015

Cubans fear changes in U.S. immigration policy could be less favorable to them

human smuggling network was dismantled last week,” said Costa Rican Foreign Minister Manuel González recently. As more immigrants continue to pour into Peñas Blancas, the situation has deteriorated to the point that a group of several hundred of them tried to cross illegally into Nicaragua, only to be forcefully repelled by the Nicaraguan Army. Many had to receive medical attention after

history in Puerto Rico, the number of Cuban nationals opting to reach U.S. territory by sea has exceeded the number of Dominican nationals, historically the most numerous group of undocumented migrants arriving to the island,” Quiñones said. He couldn’t offer the specific number of Cuban migrants arriving to Puerto Rico because the CBP hasn’t officially certified the statistic.

“Ecuador will require visas from Cuban citizens, not because we have something against Cuba…. We do this to stop the human rights violations and the loss of lives.” —Ecuadorean Deputy Foreign Minister Xavier Lasso

the incident. Nicaragua has since closed its border with Costa Rica. Despite the risks of the long overland journey, even migration authorities consider it a safer way than taking to the sea. Nevertheless, the number of migrants opting to brave the sea is also on the rise. In Puerto Rico, the number of Cuban migrants being detained by the agency showed a dramatic increase in fiscal year 2015, said Jeffrey Quiñones, public affairs officer for U.S. Customs & Border Protection (CBP). “In fiscal 2015, for the first time in the office’s

The same is happening with Cubans going to Florida. The Washington, D.C.-based think tank, Migration Policy Institute, reported some 7,167 Cubans have successfully crossed the Florida Straits to reach the Miami area during the first nine months of fiscal 2015. In fiscal 2014, the number of Cuban nationals reaching Miami was 2,992. On the other hand, the Pew Research Center reports that “overall, 43,159 Cubans entered the U.S. via ports of entry in fiscal 2015, according to [CBP] data obtained through a public records request.

This represents a 78% increase over the previous year, when 24,278 Cubans entered.” CONCERNS OF CHANGE IN U.S. POLICY TOWARD CUBANS According to U.S. and Latin American immigration oﬃcials, one of the possible reasons for the increase in the number of Cubans traveling illegally by land or sea to the U.S. is their fear that with the normalization of relations between Washington and Havana, there could be changes in U.S. immigration policy that could be less favorable to Cubans. While U.S. immigration laws haven’t changed, there is a distinct possibility they will. Dec. 17, 2015, is one year to the day it was publicly revealed that Washington and Havana had been secretly negotiating the resumption of full diplomatic relations. The reopening of embassies in Washington and Havana, removing Cuba from the U.S. list of terrorism-sponsoring states and increasing travel and business opportunities between the two countries are part of the ripple eﬀects from those meetings. This week, during an interview with Yahoo News, President Barack Obama unequivocally said, “I am very much interested in going to Cuba.” Even though he conditioned his visit to “the right conditions,” he also stated “there is an overwhelming support” on both sides for normalizing relations between the U.S. and Cuba. �

THURSDAY, DECEMBER 17, 2015

Lead

UBS Puerto Rico further shrinks its staff on the island

UBS Puerto Rico’s Downsizing Continues Sheds Staff from Several Key Divisions BY JOSÉ L. CARMONA

j.carmona@cb.pr

UBS Financial Services Inc. of Puerto Rico, the Swiss bank’s San Juanbased subsidiary, this week eliminated some staﬀ from its Wealth Management Consulting, Closed-End Funds, Personal & Corporate Trust and Fiscal Planning divisions, plus some brokers—aﬀecting fewer

than 20 employees—as the local office continues to further trim its already diminished operations on the island. “UBS Wealth Management Consulting was the most important division, as it was spearheading the firm’s local transformation. With the trimming of its staff, UBS Puerto Rico is basically left with nothing,” a source familiar with

the matter told Caribbean Business. UBS Wealth Management Consulting division handled institutional clients, such as insurance companies, credit unions, universities and important family conglomerates, to name a few, the source added. “A year ago, UBS Puerto Rico announced a restructuring of our

business, adapting to structural changes in the marketplace. As we continue to review and restructure our business, several employees left the firm this week. Decisions affecting people are always difficult and we thank them for their service and contributions,” Gregg Rosenberg, senior media relations officer for UBS Americas in New York, told Caribbean Business. “UBS remains committed to Puerto Rico, our clients and our em-

DIMINISHED PRESENCE The latest move comes amid a major shakeup in the firm’s local operations in October, which involved the elimination of the Investment Banking; Credit; Business Development; Marketing; and Government & Institutional divisions and the job termination of eight employees— including top executives and administrative staff. Previously, the firm had shut down and re-

ployees. We have maintained a strong presence and have been a part of the community on the island for half a century. We are and intend to remain an important part of this community through our continued work and support of various initiatives and events. There is nothing we take more seriously than our relationship with clients,” Rosenberg added. “We look forward to continuing to provide the highest level of service to our clients and serving the local community in the future.” The UBS spokesperson noted no divisions were eliminated, but the local ﬁrm’s latest restructuring involved “adjustments in several area groups,” with fewer than 20 jobs lost.

located staff from its Condado (San Juan), Guaynabo and Ponce offices. UBS Puerto Rico still maintains its main offices in International Plaza building on Muñoz Rivera Avenue—in San Juan’s Hato Rey financial district, plus a satellite office in Mayagüez, on the island’s west coast. Last October, UBS Puerto Rico became a subsidiary of UBS U.S., with all the Puerto Rico business essentially being managed from the company’s New York office. MILLIONS IN LOSSES The continuing downsizing responds to the decrease in the firm’s assets and business. Assets under management slid from $15.4 billion in

2010 to $8.7 billion as of June 30, 2015. UBS Puerto Rico has also been hemorrhaging clients on the heels of more than $3 billion in class-action lawsuits against the island’s largest brokerage firm from investors in the firm’s closed-end mutual funds (CEFs), which have lost millions as the value of Puerto Rico bonds declined after being downgraded to noninvestment grade. Most of the firm’s taxexempt funds, which UBS underwrote, are comprised of 70% Puerto Rico bonds in their investment portfolios. Back in September, the Financial Industry Regulatory Authority (Finra), Wall Street’s industryfunded watchdog, announced it had fined UBS Financial Services Inc. of Puerto Rico $7.5 million for “supervisory failures related to suitability of transactions in Puerto Rican closed-end fund shares.” Finra also ordered UBS Puerto Rico to pay about $11 million in “restitution” to 165 customers “who were forced to realize losses on their CEF positions.” The Securities & Exchange Commission (SEC) also took action against UBS Puerto Rico in September for “the firm’s failure to supervise a former broker who had customers invest in CEFs using money borrowed pursuant to lines of credit.” UBS Puerto Rico agreed to pay nearly $34 million to settle the SEC’s charges. The Swiss firm neither admitted nor denied the regulator’s allegations. �

THURSDAY, DECEMBER 17, 2015

Banking/Finance

Community Foundation of Puerto Rico, Citi Foundation lead novel effort

Social-Interest Housing Summit Yields Results Nonprofits Help Acquire, Rehabilitate Banks’ Repos BY JOSÉ L. CARMONA j.carmona@cb.pr

In conjunction with Citi Foundation’s Urban Transformation on Affordable Housing project, the nonprofit Puerto Rico Community Foundation (PRCF) held in November the island’s first-ever summit that gathered local financial institutions, government agencies and the island’s community housing development organizations (locally known as Chodos) to promote social-interest housing on the island. While the topic of social-interest housing is nothing new to the PRCF—as it has been working with the issue for the past 20 years— Citi Foundation’s new focus on affordable housing opened the door to retake the topic and place it front and center, David Haddock, PRCF’s vice president of programs & administration, said to Caribbean Business. Citi Foundation’s Urban Transformation on Affordable Housing program seeks to acquire and/ or rehabilitate abandoned or repossessed homes. “Using Citi Foundation’s program as a guide and funds from PRCF’s Community Investment Fund, the organization organized the summit, or junte, of financial institutions and nonprofit organizations that had a single goal of acquiring and rehabilitating

unused properties priced below $75,000 in the local banks’ portfolios, to find opportunities,” Haddock explained. The event featured several Chodos dedicated to the rehabilitation of social-interest housing such as One Stop Career Center, Indesovi and Ponce Neighborhood Housing services. There are 34 U.S. Housing & Urban Development (HUD) certified Chodos on the island, of which 14 are currently active. They have built 6,000 housing units, assisting 16,071 low-income individuals, investing a total $243 million, including public and private funds. “On one side of the table you had the Chodos, which explained their experiences, expertise and opportunities in the affordable housing field, while on the other end you had representatives from HUD, U.S. Department of Agriculture Rural Development, San Juan’s HOME program, National Development Council, Fidevi and Enterprise Community Partners presenting their private and public offerings,” Haddock said. “Different working groups were created to align the offers with the opportunities and establish collaborative agreements.” Also at the summit were representatives from Banco Popular, Scotiabank Puerto Rico, FirstBank, Banco Santander Puerto Rico, Puerto Rico

Housing Department and the Puerto Rico Housing Finance Authority, among others. The summit’s goal was to identify 14 housing units to be acquired and rehabilitated and make them available for social-interest housing, whether for rent or sale, and the group ended up closing in on 29 units. DIRE NEED FOR HOUSING Back in 2014, the number of repossessed properties in local banks’ portfolios amounted to 10,000

units, although that number has since diminished due to investment groups buying portfolios of distressed properties at different financial institutions, noted Álida Rivera, PRCF director of community affairs. “For us, this opportunity provided by Citi Foundation inserted us back again in the affordable housing issue, while providing another opportunity for housing development on the island, as federal funds have been dwindling and could disappear in the future,” Rivera said. According to data provided by the PRCF, there are more than 120,000 families on the island that share the same household; 110,000 housing units deemed deficient; 29,792 individuals on

a waiting list for public housing; 3,400 homeless individuals; 18,500 homeowners about to be foreclosed; 14,000 new lowincome homeowners to

be formed in the next ﬁve years; and as the number of new homebuyers diminishes, 10,000 rental units will be needed in the local market. �

caribbeanbusiness.pr Volume 1, No. 7 Thursday, December 17, 2015 Publisher Miguel A. Ferrer

Editor in Chief Heiko Faass

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THURSDAY, DECEMBER 17, 2015

Federal Affairs

Omnibus bill to incorporate mechanisms to restructure debt

Omnibus Bill Expected to be Voted on Today Includes Language on P.R. Debt Restructuring BY EDISON REYNALDO MISLA e.misla@cb.pr

While intense negotiations continued between Republicans and Democrats in Congress, it was still unclear at presstime Monday what tool the Omnibus budgetary bill would give Puerto Rico as a way to legally restructure its debt, such as through Chapter 9

bankruptcy protection, and if it would include some form of a federal fiscal control board as a counterbalance. The text of the Omnibus bill was expected to be released early Tuesday, Dec. 15, according to a statement sent Monday by Resident Commissioner Pedro Pierluisi to Caribbean Business. Under rules established by the Republican majority

in the House, a bill must be publicly available for 72 hours before it can be voted upon. That would mean the vote would be today, at the earliest. “The current continuing resolution—which expires at the end of the day on Wednesday [Dec. 16]—will thus have to be extended for a short period. In terms of Puerto Rico, negotiations are ongoing. Members of

Congress from both parties have weighed in with leadership in support of Puerto Rico, and I am grateful to each one of them,” Pierluisi said. On Monday, Javier Llano, partner at Oldaker Law Group in Washington, D.C., was confident the bill would include language allowing Puerto Rico to enter into an orderly process of debt restructuring. “If it is Chapter 9 or a modified version, no one can say yet,” Llano said. Such a measure would most likely come with strings attached. Both moderate Republicans and Democrats support some form of federal

government oversight to tackle Puerto Rico’s fiscal challenges, Llano indicated. Federal government oversight could also take the form of a requirement for periodic reports to Congress from the U.S. Treasury on Puerto Rico, he said in a previous interview. It was expected that the Tax Extenders bill, which could be tethered to the Omnibus bill, would contain provisions that benefit Puerto Rico, such as the extension of the rum “cover over.” Under federal law, an excise tax of $13.50 per gallon is collected on all rum imported to the U.S. Most of those funds

are then transferred, or “covered-over,” to the Treasury departments of Puerto Rico and the U.S. Virgin Islands (USVI). Permanent law mandates that $10.50 of the excise tax be returned to Puerto Rico and the USVI. The bill should also include a reduction from 35% to 32% in the tax rate for companies that do business in Puerto Rico as domestic subsidiaries. Finally, in terms of Medicare, there was still hope the Omnibus bill would authorize the U.S. Health secretary to delay the 2016 cuts to Medicare Advantage rates. �

It’s time for Year-End Financial and Tax Planning es, for those corporations, Y partnerships and self-employed individuals and even

trusts, as their case may be, that close their books by the end of the year December 31, 2015, it is that time of the year in which you must perform the yearend Financial and Tax Planning, says Fernando Carbonell, Audit Partner at Carbonell & Co. LLP. Before the year ends, it would be wise to review your interim numbers (financial statements) as close as possible to December. An ideal scenario would be to review preliminary financial information as of December 30, 2015. However, any other period close to November may give you a reasonable estimate of how the year may end. The planning process starts by printing a balance sheet and income statement. These reports may present the current financial results which will lead to determine the tax responsibility. Please remember that the financial and income tax balances swing in opposite directions—better financial results, higher income taxes and lower financial results, lower income taxes. Also remember that the planning will depend on the accounting method used between the cash basis method

or the accrual basis method. All accounts should be reviewed but the most common and significant that should be reviewed are accounts receivable, investments, inventories, property and equipment, sales, general expenses and pensionplan expense. Accounts receivable should be reviewed and assessed for collectability. Accounts receivable that will not be collected should be written off from the books to reduce the income tax effect. Accounts receivable go hand by hand with sales. Depending on the planning, management may decide at year end to speed up the sales or to hold and defer them for the next year. The investments account and portfolios should be reviewed to determine the realized and unrealized capital gains and losses. The first assessment must be made on realized capital gains and losses. Then, a second assessment must be made on unrealized capital gains and losses to determine if any of those gains and losses should be realized to offset the accumulated capital gains or to reduce the accumulated capital losses. The inventory items should be reviewed and assessed for their

condition, re-sell value and demand. Obsolete inventory that is damaged, has no demand nor re-sell value should be written off. This will have the effect of reducing the income taxes for the year. Furthermore, this adjustment will also have a reduction effect in personal property taxes. Property and equipment should be reviewed for impairment at least annually or whenever events or circumstances indicate that their carrying value may be unrecoverable. Any obsolete or disposable equipment that is not used in the operations should be written off the books. This adjustment will also have a reduction effect in personal property taxes. If the total of expected future undiscounted cash flow of the property and equipment is less than the carrying value of the assets, a loss should be recognized for the difference between the imputed fair value and the carrying value of the assets. A similar rule applies for intangible assets, these must be tested for impairments. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss should be recognized in an amount equal

to that excess. General expenses should also be analyzed during the process of financial and tax planning. Depending on the circumstances, management may determine to request products and services in order to recognize the expense and the deduction in the current year or to decide to postpone them until the next year. Additional consideration should be given to the revenues and expenses to determine the effect on the Alternative Minimum Tax. Speaking of deductions, contributions to a pension plan should also be considered mainly as a income tax planning tool. It is very important to know that employers that have not implemented a pension plan have until December 31 of this year to file a pension plan with the Puerto Rico Treasury Department. The filing must be done before year end in order to get a qualification from the Department and to be able to take the contributions to the pension plan as a deduction in their income tax returns. Please note, that the implementation of Law 1, 2011 and the new tax Code, as amended, section 1081 provides an allowable contribution up to 25% of

an employees’ salary. Should you need assistance with the implementation and filing of a pension plan with the Puerto Rico Treasury Department, you can call Mr. Carbonell at 787300-3777 or e-mail him at flc@ carbonell-cpa.com. Other tips to consider at year end are to reduce the cash on hand so that it will not be considered as taxable property in the personal property tax return at year end; to reconcile all sales tax withheld on goods and services, income tax withheld to employees, and income tax withheld on professional services received with the deposits and payments issued to the Puerto Rico Treasury Department. Law 159 of September 30, 2015 extended the filing period until December 31, 2015 to prepaid retained earnings (dividends) and implicit distribution at a reduced rate of eight percent (8%). Last, but not least, it is also the right time for quoting the yearend audit and tax preparation. Taking some time to review your financial and tax planning before the end of the year may result in stronger financial statements, lower taxes, and lower tax savings. �

ADVERTORIAL

THURSDAY, DECEMBER 17, 2015

Sin Comillas is a Spanish-language digital media website that specializes in business news in such areas as economics, banking, planning and tourism. Sin Comillas was founded in 2010 by economist and journalist Luisa García Pelatti.

Mortgage Originations Recuperate Mortgage originations grew 15.5% in number and 15.3% in value in the third quarter (3Q) of 2015, according to the Financial Institutions Commissioner’s Oﬃce (OCIF by its Spanish acronym). Growth was strongest in banks (25.8%) rather than in institutions that only generate mortgages (4.6%). Despite the rebound, originations are half of what they were in 2006. Mortgage originations have increased from 5,821 in 3Q 2014 to 6,723 for the same period this year, which are the highest numbers since 2013. Between July and September 2015, 902 more loans were originated than in the same period in 2014. This is the second-consecutive increase after experiencing seven third quarters in a downward trend. The value of these loans was set at $988.1 million, or 15.3% more than the $856.7 million for the same period in 2014. For all of 2014, 23,551 mortgages were originated, which was 30.4% less than in 2013. Originations had already decreased 5.1% in 2013, when 33,761 mortgages were generated. Mortgages had increased 10.6% in 2012, after six years in a downward trend. The average value of originated mortgages was $146,980, or 0.1% less than for the same period in 2014, when the average was $147,176. Mortgage originations by commercial banks increased 25.8% and the value of those loans grew 23.1%. Meanwhile, in nondepository mortgage institutions (those only involved in generating mortgages), originations increased 4.6% and their value grew by 4.2%. The level of defaults on mortgages, which was as high as 22% in 2011 and remained below 16% for most of 2014, fell to 13.2% in July of this year. In July 2015, there were more than 18,950 properties in some stage of the foreclosure process. Up until July, 2,499 homes had been executed and that number is expected to reach 4,440 by the end of the year. This would be the highest ﬁgure in this process over the past three years.

Statistics Institute to Participate in Hour of Code 2015 The Puerto Rico Statistics Institute will take part in the Hour of Code 2015, a world-level educational event to promote the learning of computer programming languages. The Hour of Code, whose slogan is “We can all learn,” consists of each participant dedicating at least one hour or more to computer programming activities designed to dispel myths and apprehension typically associated with the computer sciences. Furthermore, the event wishes to stress that any person, of any age, economic status or gender can learn to program. “The Bureau of Labor Statistics of the U.S. Department of Labor estimates that the occupations that require skills in math and computers will continue to experience high demand over the next decade,” said Mario Marazzi Santiago, the institute’s director. “That is why it is imperative for all sectors, including the government, to promote the development of these skills for our citizens and, through this eﬀort, help boost our economy.” For more information about the Hour of Code 2015, visit https://code.org . It is expected that tens of millions of people from more than 180 countries will participate in the event.

T H U R S D AY, D E C E MB E R 1 7 , 2 0 1 5

WINNERS & LOSERS W E E K LY P E R F O R M A N C E O F P U E RT O R I C O S T O C K S WINNERS FOR THE WEEK

Puerto Rico Occupies 134th spot Among 189 Countries in Corporate Taxes

STOCK

52-wk SYMBOL LOW

52-wk HIGH

PRICE 12/4

PRICE 12/11

CHANGE

LOSERS FOR THE WEEK

A typical global-level company in 2014 had a tax rate of 40.8% on its earnings and had to make 25.6 payments a year to comply with its tax obligations, which takes 261 hours, according to the “Paying Taxes 2016” study from the World Bank and PricewaterhouseCoopers (PwC).

STOCK

52-wk SYMBOL LOW

52-wk HIGH

PRICE 12/4

PRICE 12/11

CHANGE

Triple-S Management Corp. GTS

17,34

27,07

25,50

23,72

-1,78

Popular Inc.

BPOP

27,17

35,83

29,29

27,75

-1,54

In Puerto Rico, the tax rate is 65.8% and 16 payments have to be made, which takes 218 hours. These results place the island in the 134th spot among 189 countries.

OFG Bancorp

OFG

6,49

17,83

7,88

6,80

-1,08

Evertec Inc.

EVTC

14,93

23,12

17,52

16,65

-0,87

Top spots are held by Qatar, United Arab Emirates and Saudi Arabia, where tax rates for corporations range from 11% to 15%, with three or four payments taking 12 to 64 hours to process. The U.S. mainland has an average corporate tax rate of 43.9%, which requires 175 hours and 11 payments to process, placing the country in the 53th spot in the study. Singapore holds the 40th position, and Ireland No. 6 with a 25.9% corporate rate, requiring 82 hours and nine payments.

First BanCorp

FBP

3,02

6,76

3,45

3,17

-0,28

In global terms, the results represent a 0.1% decrease in the tax rate when compared to last year, and the number of hours that companies have to dedicate for paying taxes has been reduced by two hours. In the past 10 years, the amount of time for this process has been reduced by 61 hours and the number of payments has been cut by 8.2 through electronic payment systems and document transfers. In 2014, 40 reforms in various countries have made it easier and less costly to pay taxes. The most common reforms are a reduction of taxes and the use of electronic systems. In 2015, 46 countries allowed for the ﬁling of tax documents electronically. The reforms are less evident in the countries of Latin America, where the time required for paying taxes and the tax rates are the highest in the world.

Weekly Comment on Puerto Rico Stocks Plunging crude-oil prices sent stocks sharply lower last Friday, with the Standard & Poor’s (S&P) 500 Index ending its worst week in five months. The drop in oil increased investors’ concerns about weakness in commodities stocks, ahead of the Federal Reserve’s Dec. 15-16 meeting where an interest-rate hike was on the table. Brent crude-oil futures fell below $38—nearly a sevenyear low—while U.S. crude-oil futures fell to just above $35 a barrel. In a report, the International Energy Agency said it expected the oil-supply glut to worsen next year as demand slows and the Organization of Petroleum Exporting Countries (OPEC) doesn’t intend to slow production to maintain market share. To add to investors’ somber mood, China’s yuan fell to its lowest level in four and half years, on concerns about the Asian country’s slowing economy and the impending U.S. interest-rate hike. The S&P Energy Index fell 3.4%, losing 11% since the beginning of December—it’s worst month since September 2011. For the week, The Dow Jones Industrial Average fell 3.3% to 17,265.21. The S&P sank 3.8% to 2,012.37, while the Nasdaq Composite Index dropped 4.1% to 4,933.47. On the local front, the Government Development Bank’s Puerto Rico Stock Index (PRSI) fell for the second week in a row, this time with all components dragged down by the market’s selloff, which also had an impact on financial stocks. For the week, the PRSI lost 113.34, or 6.20%, to close at 1,715.88. Topping last week’s list of nongainers was OFG Bancorp, which erased $1.08, or 13.71%, to close at $6.80. It was followed by First BanCorp, which edged down 28 cents, or 8.12%, to close at $3.17. Shares of Triple-S Management Corp. fell $1.78, or 6.98%, to close at $23.72. Popular Inc. trimmed $1.54, or 5.26%, to close at $27.75. Evertec Inc. lost 87 cents, or 4.97%, to close at $16.65. BY JOSÉ L. CARMONA SENIOR REPORTER, BANKING & FINANCE CARIBBEAN BUSINESS

THURSDAY, DECEMBER 17, 2015 FRONT PAGE

Person of the Year:

Puerto Rico Debt Crisis Makes its Way to Washington, D.C.

BY PHILIPE SCHOENE ROURA & ROSARIO FAJARDO p.schoene@cb.pr; r.fajardo@cb.pr

ew stories pertaining to Puerto Rico have captured the attention of mainstream press as the island’s debt—a monster towering $70 billion tall. It loomed large on the horizon long before 2015, but Puerto Rico managed to keep it at bay in 2014 with a $3.5 billion deal put together by the

Royal Bank of Canada, Barclays and Morgan Stanley. The bond deal gave Puerto Rico’s government much-needed liquidity at a 10% yield no less because the island’s credit had been downgraded to noninvestment grade, or junk, in February 2014, just over a year into Gov. Alejandro García Padilla’s ﬁrst term as governor. No sooner had the bond deal been struck when the García Padilla administration’s economic team was seen slapping high ﬁves, their jubilation a

sign that Puerto Rico had obtained essential ﬁnancing, but at a high cost. At the same time, the deal would continue to mask a devastatingly low labor-force participation rate stuck at 40%, outmigration of Puerto Rico’s professional class and young adults to the tune of 1,000 people jetting from the island every week and an economy stuck in a nine-year funk. This was a year ago when Puerto Rico still had access to capital markets—albeit barely—and

the García Padilla administration’s restructuring brigades could delude themselves into believing the debt behemoth could somehow be kept under control. This was a ﬂeeting moment of self-deception because deep down, everyone knew there was a horrendous debtservice payment schedule looming on the horizon—this year alone, there was a $415 million payment due for the Puerto Rico Electric Power Authority (Prepa), $1 billion due

for general-obligation bonds and $300 million in tax revenue anticipation notes—all in just one month, July. Other hundreds of millions of dollars were due throughout the year, including a $354.7 million payment on outstanding GDB notes on Dec. 1. It was becoming increasingly clear that without economic development and with a paper-thin tax base, Puerto Rico’s government faced the Continues on next page

FRONT PAGE THURSDAY, DECEMBER 17, 2015

The island’s debt-service payments will total more than $5 billion in ﬁscal 2016 alone, according to the Government Development Bank (GDB). This is an impossible debt burden for an economy that is now in a nearly 10-year freefall, during which time more than 12,000 businesses have closed and more than 225,000 jobs have been lost.

impossible debt burden for an economy that is now in a nearly 10-year freefall, during which time more than 12,000 businesses have closed and more than 225,000 jobs have been lost.

KRUEGER: RESTRUCTURING A MUST

Continues from previous page

impossible task of ﬁghting Godzilla with rubber bullets. However, it took a June 2015 report, “Puerto Rico—A Way Forward,” painstakingly put together by former International Monetary Fund Managing Director Anne Krueger (she pronounces it Kreeger) and colleagues Ranjit Teja and Andrew Wolfe, to open the governor’s eyes to the magnitude of the crisis. In Krueger’s perspective, Puerto Rico,

despite the commonwealth having implemented rather hefty spending cuts and tax increases that levied more than $2 billion in taxes on taxpayers and the business community, continues hemorrhaging jobs and therefore, lacks the revenue stream to meet enormous debt-service payments over the next 20 years. The island’s debt-service payments will total more than $5 billion in ﬁscal 2016 alone, according to the Government Development Bank (GDB). This is an

Krueger’s report came to the inevitable conclusion that it was impossible to grow Puerto Rico’s economy without restructuring its $70 billion public-sector debt. During an exclusive interview with Caribbean Business that took place one week after the iron maiden delivered her devastating report, Krueger insisted that labor reforms and economic development were essential components missing from a formula for sustainable growth. Krueger told Caribbean Business that labor reforms— such as extending the probationary period for new hires from three months to one year, cutting excessive overtime costs and slashing paid vacation from 30 days down to 15 days—were essential to create jobs and get the economy growing again, just as it was important to have the recourse of orderly restructuring

of the insurmountable debt. “It would certainly make it a smoother process; let me put it that way. There is going to come a point where it has to happen somehow,” Krueger told Caribbean Business. “And with Chapter 9 [bankruptcy], it might come a little sooner and that would be a little less costly for Puerto Rico. So, yes, it would make it easier…there will come a time when Puerto Rico can’t pay,” she said at the time. That was more than five months ago. In the time since delivering the report, Krueger headlined a dog and pony show in July with Jim Millstein, a former U.S. Treasury Chief Restructuring Officer hired by the Puerto Rico government to help in the restructuring efforts, before an audience of a select group of creditors that characterized the meeting as a one-sided pitch rather than the beginning of true negotiations. Few people were impressed. “That wasn’t a conversation. That was just a presentation of the Krueger report. There was no dialogue,” said Ambac Assurance CEO Nader Tavakoli during an exclusive interview with Caribbean Business days after the dog and pony show

with creditors. “We need real dialogue—people sitting down at the table and discussing real solutions, including liquidity solutions. There is a real liquidity problem—the liquidity problem shouldn’t be used as an excuse for default,” he said. Back then, the administration was hoping it could obtain orderly relief through the Puerto Rico Debt Compliance & Recovery Act of 2014—also known as the local bankruptcy law—or through U.S. House Resolution 870, which was ﬁled by Puerto Rico’s nonvoting member of Congress, Resident Commissioner Pedro Pierluisi, to amend Chapter 9 of the U.S. Bankruptcy Code to include Puerto Rico. Conventional wisdom on the reasoning behind removing Puerto Rico and the other territories from the bankruptcy protections of Chapter 9 in 1984 has led the public to believe this was an act by Congress that took place much as penicillin was discovered—by accident. “Nothing in Congress happens by accident,” explained one lobbyist on Capitol Hill who chose to remain anonymous. “Members Continues on page 18

THURSDAY, DECEMBER 17, 2015 FRONT PAGE

Resident Commissioner Pedro Pierluisi and Government Development Bank President & Chairwoman Melba Acosta

Continued from page 17

of Congress were lobbied and someone stood to beneﬁt from that. Ask yourself who that someone may be and I think you will ﬁnd creditors behind it.”

EFFORTS IN CONGRESS As 2015 winds to a close, the possibility of Congress passing a bill to amend Chapter 9 to extend protections to Puerto Rico seems highly unlikely. “The problem is that the García Padilla administration has been going about this all wrong because they are only lobbying members of Congress,” said another source on Capitol Hill with close ties to the Democratic Party, who talked to this newspaper in

June. “The bondholders have also been lobbying members of Congress. So, you have two forces canceling each other out. What Puerto Rico needs is to lobby the bondholders so they can understand the importance of orderly debt restructuring for Puerto Rico.” The most recent lobbying effort by the García Padilla administration took place this past week. An army of public officials—from heads of the island’s mayors associations to the University of Puerto Rico president—descended on Capitol Hill for what amounted to lightning photo-op meetings coordinated by public relations firm SKDKnickerbocker. Meanwhile, the socalled “de facto” governors of Puerto Rico—namely advisers

on the level of Millstein and retired U.S. Bankruptcy Judge Steven Rhodes, who oversaw Detroit’s bankruptcy case, and Dick Ravitch, former lieutenant governor of New York, wielded their brand of statecraft in meetings to help secure a bill to tackle Puerto Rico’s fiscal crisis, which was filed jointly by U.S. Republican Sens. Orrin Hatch (Utah), Lisa Murkowski (Alaska) and Charles Grassley (Iowa). The measure, dubbed the Puerto Rico Assistance Act, would provide short-term tax relief to the island’s workers, while tapping into Affordable Care Act funds to make available to the commonwealth government up to $3 billion in bridge financing through fiscal year 2016.

In return, the Republicans are proposing the creation of the “Financial Responsibility & Management Assistance Authority”—a U.S. presidentappointed, six-member entity to control the commonwealth’s budgetary and ﬁscal processes, among other tasks. The authority would be vested with broad investigative powers, including direct access to the commonwealth’s information systems, documents or data. It would be allowed to issue subpoenas, and may seek judicial enforcement to carry out its responsibilities under the legislation. Congress would be kept very much in the loop, with the proposed entity having to constantly report back to Capitol Hill on several

matters, including the commonwealth’s progress in meeting—or failing with— the bill’s objectives, as well as any action that may adversely affect “the commonwealth’s best interests.” In a recent interview with the investigative magazine Mother Jones, Pierluisi said the bill introduced by Hatch imposes a federally appointed board that would have “total control” over financial decision-making in Puerto Rico. Some observers see the filing as the ultimate act of cynicism because they see a categorical impediment to its passing in the U.S. House of Representatives, where a block of 40 votes of the Tea Party Continues on next page

FRONT PAGE THURSDAY, DECEMBER 17, 2015

Meanwhile, the so-called “de facto” governors of Puerto Rico—namely advisers on the level of Millstein and retired U.S. Bankruptcy Judge Steven Rhodes, who oversaw Detroit’s bankruptcy case, and Dick Ravitch, former lieutenant governor of New York, wielded their brand of statecraft in meetings ngs to help secure a bill to tackle Puerto erto Rico’s ﬁscal cal crisis.

Jim Millstein, a former U.S. Treasury Chief Restructuring Oﬃcer

Continues from previous page

persuasion refuse to consider any measure that even remotely resembles a bailout for the island.

THE DEBT MONSTER IN

BRIEF To say that Puerto Rico’s $70 billion debt monster is complicated is an understatement. The debt structure comprises 18 government entities and instrumentalities, including the commonwealth government, GDB and a host of public corporations—but excluding municipal governments— with eight levels of protection to bondholders, from the most secure to the weakest, according to Sergio Marxuach, the policy director for the

Center for a New Economy, a San Juan-based think tank. The bonds that oﬀer the most protection are generalobligation (GO) bonds, which are backed by the full faith and credit of the commonwealth government. According to the Puerto Rico Constitution, paying GO bonds has a “ﬁrst claim on the available resources of the Commonwealth,” as Marxuach notes in a November 2015 analysis of the island’s debt structure. Second in line are bonds and notes guaranteed by the commonwealth’s good faith and credit and include some bonds from the Puerto Rico Aqueduct & Sewer, Public Buildings and Puerto Rico Infrastructure & Financing authorities, among others.

Third are bonds issued by the Sales Tax Financing Corp., known as Coﬁna by its Spanish acronym, which are secured by 3.5% of the 11.5% sales & use tax. Fourth in line are bonds issued by the Municipal Finance Agency, followed by those issued from the “stateowned enterprises,” or public corporations, which are expressly guaranteed by the commonwealth. Then there is debt known as commonwealth appropriations or taxes, which require legislative assignments for repayment. These debts include those from the Public Finance Corp., of which the Puerto Rico government already defaulted in August 2015. Seventh in line, and near

the bottom of the list, are employees retirement system bonds, which are solely paid by employer contributions and aren’t guaranteed by the commonwealth. Finally, the last in line and the weakest are limited obligation and “nonrecourse debts,” which include bonds issued by the Children’s Trust, as well as some from the Housing Finance Authority and Puerto Rico Highways & Transportation Authority. Unless Puerto Rico is granted access to Chapter 9, Marxuach has predicted a battle royale between the commonwealth and its many creditors because of the complex debt structure. He concurs with an assessment of Puerto Rico’s debt structure by Anna Gelpern

of the Peterson Institute for International Economics. “The insanely convoluted debt structure includes bonds whose priority repayment is guaranteed by the Puerto Rican Constitution, bonds governed by New York law, bonds secured by sales-tax revenue routed to the creditors by statute, bonds secured by other revenue pledges that could be more easily diverted and bonds payable if the Legislature appropriates the money. There are also pensions and other government obligations to its citizens, which have their own constituencies and protections,” she said in an October 2015 article. For Marxuach, the “end Continues on page 20

THURSDAY, DECEMBER 17, 2015 FRONT PAGE

The alternative— default—would send Puerto Rico down a path of no return with litigation that some creditors have estimated will cost the government some $500 million annually. Continues from page 19

game” must include granting Puerto Rico access to Chapter 9. “First, bankruptcy protection is not a federal bailout, as it would not cost the federal government a single cent. Furthermore, it could be argued that the probability of a bailout by the federal government would increase significantly if Puerto Rico and its agencies and instrumentalities were not allowed to restructure their debt under Chapter 9,” he said in his analysis. “Second...Puerto Rico’s debt is spread across a variety of debtors [18 issuers in total] representing a complex web of claims in an uncertain regulatory and legal framework. This situation makes it very difficult for creditors to work as a class because one set of creditors will worry that any relief they provide the island will simply make it easier for a different set of creditors to recover a larger amount of their claims,” he added.

LIFE OR DEATH STRUGGLE Today, the García Padilla administration is in a life or death struggle attempting to close a restructuring support agreement (RSA) with creditors that own Prepa debt. In what has amounted to a complex game of cat and mouse, Prepa Chief Restructuring Oﬃcer Lisa Donahue has

negotiated extension upon extension of a forbearance agreement that is on its last legs. At this writing, there is a Dec. 17 deadline approaching on the RSA that will likely be extended once again. A key sticking point is putting together a deal that would allow MBIA Inc.’s National Public Finance Guarantee, one of the bond insurance companies on the hook for a whopping $1.4 billion in Prepa debt, to guarantee a reﬁnancing of some of its debt. This way, outright default is averted; but the blue chippers in the ﬁnancial community remain very cautious about Puerto Rico. All observers are pointing to this negotiation as essential because it would provide a blueprint for the shape of restructuring to come. The alternative—default— would send Puerto Rico down a path of no return with litigation that some creditors have estimated will cost the government some $500 million annually and loss of access to capital markets for more than a decade. Marxuach, Krueger and others see Chapter 9 as the answer, however imperfect it may be, with some pointing out that Detroit has bounced back from the brink. Regardless, no one wants a bleak future for Puerto Rico, and it remains to be seen what the New Year will bring. � —Reporter Luis J. Valentín contributed to this story.

Puerto Rico Public-Sector Debt – Outstanding Principal Issuer

Acronym

Outstanding Principal

Commonwealth of Puerto Rico

Commonwealth

Puerto Rico Electric Power Authority

Prepa

Puerto Rico Sales Tax Financing Corp.

Cofina by its Spanish acronym

Puerto Rico Aqueduct & Sewer Authority

Prasa

Puerto Rico Municipal Finance Agency

MFA

$699,555,000.00

Puerto Rico Public Buildings Authority

PBA

$4,236,970,000.00

Puerto Rico Public Finance Corp.

PFC

$1,090,740,000.00

Puerto Rico Ports Authority

Ports

Puerto Rico Infrastructure Financing Authority

AFI

Puerto Rico Infrastructure Financing Authority

AFI (Ports Authority bonds)

Puerto Rico Infrastructure Financing Authority

AFI (Mental Health & Antiaddiction Services Administration bonds)

Children’s Trust Fund

Children’s Trust

$1,200,000,000.00

Puerto Rico Highways & Transportation Authority

Highways

$6,423,321,000.00

Puerto Rico Highways & Transportation Authority

Highways (Teodoro Moscoso Bridge)

Employees Retirement Systems of Puerto Rico

Retirement

Puerto Rico Convention Center District Authority

Convention Center

$543,025,000.00

Puerto Rico Industrial Development Co.

Pridco

$171,080,159.20

University of Puerto Rico

UPR

$533,338,000.00

University of Puerto Rico (Issued by Afica-see below)

UPR (Plaza Universitaria)

Government Development Bank

GDB

Others

$12,655,000,000.00 $8,970,547,000.00 $15,223,820,615.80 $4,659,201,000.00

$285,635,000.00 $1,866,155,000.00 $192,280,000.00 $36,400,000.00

$129,777,270.45 $2,947,648,342.65

$66,485,000.00 $4,241,962,000.00 $3,736,059,611.90

Total

$69,909,000,000.00

Totals may not add up due to rounding. “Others” category includes various obligations including Housing Finance Authority debt. Sources: Government Development Bank, Puerto Rico Quarterly Financial Report published Nov. 6, 2015 and Center for a New Economy.

THURSDAY, DECEMBER 17, 2015

Editorial

Column The problem is unfettered access to guns and ammo BY MARY SÁNCHEZ

The Puerto Rico Debt Monster Takes Center Stage It is customary in publications across the globe to close the year with a Special Report on the Person of the Year. Under the new ownership of Latin Media House, Caribbean Business has decided to break with a pattern long established in this newspaper of naming a Person of the Year, one for the public sector and another for the private sector. Yes, Government Development Bank President & Chairwoman Melba Acosta has taken on a thankless job—the anvil of debt restructuring weighing heavily around her neck. However, the biggest story taking on a personality all its own has been Puerto Rico’s monstrous debt. Puerto Rico’s debt crisis is therefore our Person of the Year. Such is the magnitude of that towering $70 billion debt (tied to bonds with regular debtservice payments) that this year, the stateside and international press has dedicated more column inches to the subject than any other story coming out of Puerto Rico. National publications serving the financial community—Bloomberg, Bond Buyer, Debtwire—have contingents of reporters dedicated solely to covering Puerto Rico’s debt. The massive coverage of Puerto Rico’s debt crisis traces in large part to a confluence of events—largely the commonwealth’s admission of its incapacity to meet an onerous debt-service payment schedule that will reach more than $5 billion in fiscal 2016—that have made many creditors jittery. It took a report “Puerto Rico—A Way Forward” painstakingly put together by former International Monetary Fund (IMF) Managing Director Anne Krueger and colleagues Ranjit Teja and Andrew Wolfe to open Gov. Alejandro García Padilla’s eyes to the magnitude of the debt crisis. Without the prospect of job growth on the level that is necessary to achieve sustainable economic development and a paper-thin tax base, Puerto

Rico has been hard-pressed to meet a very steep debt-service payment schedule without orderly restructuring. Krueger’s report was intended to put the “Good Housekeeping” seal of approval on the commonwealth’s negotiations with creditors, many of which have seen the governor handing over his constitutional charge to what largely amounts to bankruptcy advisers. That is a shame. To add insult to injury, the García Padilla administration is in the unenviable position of hoping against hope that Congress will take up a measure filed in the U.S. Senate by Sens. Orrin Hatch (R-Utah), Lisa Murkowski (RAlaska) and Charles Grassley (R-Iowa). The bill essentially assigns a financial control board—they call it an authority—to wield control over all financial decision-making in Puerto Rico in exchange for what amounts to a brief respite of some $3 billion. As this newspaper was hitting newsstands, the Puerto Rico Electric Power Authority (Prepa) was facing yet another deadline on a Restructuring Support Agreement (RSA) that the García Padilla administration’s restructuring brigades were hoping could become a blueprint for moving forward. Without that deal, Puerto Rico faces a harrowing 2016 that kicks off with a debt-service payment of $957 million on Jan. 1 alone. Default would send Puerto Rico down a road to litigation that some creditors are claiming could cost the commonwealth $500 million in legal fees a year. There is no bigger story than this horrendous debt crisis. Waiting for bailouts or hoping the U.S. Supreme Court will deem the Puerto Rico Debt Compliance & Recovery Act enforceable during hearings in March 2016 won’t solve the underlying issues that got us in this terrible jam in the first place. �

Gun sellers can expect a bountiful Christmas. On Black Friday, more than 185,000 background checks were processed for firearms purchases—an alltime record stateside. The shooting spree in San Bernardino, Calif. will be good for business as well. Background checks always spike after mass shootings. Given that the perpetrators appear to have been a married Muslim couple, the hysteria factor will only be magnified. The motives of the San Bernardino murderers, Syed Rizwan Farook and Tashfeen Malik, are still being deciphered. But their case fits a pattern: In America, dangerous people find it very easy to get weapons. They even do it legally, as is believed to be the case for two handguns and two assault-style rifles the couple used. If you hope the San Bernardino deaths will move minds to limit access to guns by those who would cause such carnage, think again. That isn’t how fear works in America. We freak out first. Wisdom comes later, if at all. Congress certainly isn’t helping. A day after the San Bernardino attacks, GOP senators deep-sixed an amendment that would have allowed the attorney general to ban people on the federal terror watch and no-fly lists from purchasing weapons. Senators also nixed an attempt to expand background checks. So expect a number of Americans to rush to arm—or, rather, re-arm. According to the General Social Survey, only 22% of Americans personally own a gun. What might account for growing arms sales is that those gun owners are increasing their arsenals. The sales volume at Wal-Mart, the nation’s biggest gun and ammunition seller, isn’t being driven by new gun buyers. Gun-ownership statistics tend to undercut widely held preconceptions. If you listen to gun-rights chatter, you might assume gun-ownership rates were far higher. Even if you credit other surveys, one fact is inescapable: Far more Americans packed heat in the late 1970s and early 1980s than do now. At the high point, about half of Americans

either owned or lived with someone who owned a gun. That’s a sign of hope. Most Americans don’t buy the argument that they will be the “good guy with a gun” that gun advocates pitch as the antidote to mass shootings. Demographics are another factor. Minorities now comprise a higher percentage of the population, and they have historically lower rates of gun ownership. And fewer people hunt. Among gun owners, there’s reason to believe there’s a silent majority of safety-conscious people who recognize their right to own a gun comes with great responsibility. The voices of this crowd tend to be drowned out by those who can only scream about the Second Amendment and by those who ignore the complicated nature of enacting stronger protections. The Republican reply to the rising toll of mass shootings has been to call attention to the failures of mental health services. Yes, we need to address underfunding and lack of access to care, but that’s half a solution. At the very least, we must ensure people who are mentally ill can’t possess a gun. There’s nothing anti-Second Amendment about that approach. That would require comprehensive background checks, including as a prerequisite for private sales and sales at gun shows. Certainly, we need databases for gun sales that respect and protect privacy, and that are also accurate and up-todate. But let’s be serious. Adam Lanza and his mother needed less privacy about his mental health and the arsenal they kept in their home. The same can be said about the San Bernardino shooters. They had 12 pipe bombs and more than 3,000 rounds of ammunition at their home, more than 1,600 bullets on them when they were killed by police and had shot oﬀ at least 75 rounds at the Inland Regional Center. Time will reveal the shooters’ motives, how they gathered their arsenal, and how they planned their attack. But our silence, our denial that we have a problem, has cost 14 more lives. �

THURSDAY, DECEMBER 17, 2015

Waiting for the U.S. Supreme Court Decision on Puerto Rico Recovery Act

BY LUIS J. VALENTÍN

l.valentin@cb.pr

hen the U.S. Supreme Court decided on Dec. 4, 2015, to grant the Puerto Rico government’s petition to review the enforceability of a local bankruptcy law for its ﬁnancially battered public utilities, many rejoiced and called it a game changer in the commonwealth’s crusade to restructure at least part of its roughly $70 billion debt. But how much of a game changer would it be? Perhaps most importantly, how quickly would the court’s action arrive for a Puerto Rico government that is “borrowing” from Paul to pay Peter and desperately running low on cash? Convincing the top court it should review an issue related to the island’s debt crisis could be viewed as a win for the commonwealth government. Only about 100 to 150 cases are taken up for

consideration each year, of the more than 7,000 petitions received, according to the court’s website. Moreover, the court reversed 72% of the decisions it reviewed from lower courts during its 2014 term, says the Scotus (Supreme Court of the U.S.) blog—a media outlet solely dedicated to covering the U.S. top court. For the past three decades, Puerto Rico has had no legal framework to restructure its debts under federal law, namely Chapter 9 of the U.S. Bankruptcy Code. When the commonwealth attempted in 2014 to establish its own municipal bankruptcy mechanism— the Public Corporations Debt Compliance & Recovery Act—it was challenged soon after its enactment. The Recovery Act is a mechanism similar to that of Chapter 9, which would only allow Puerto Rico to restructure debt held by public corporations, or roughly $20 billion.

AND SO IT BEGAN In the summer of 2014, a group of creditors holding about $2 billion of the Puerto Rico Electric Power Authority’s (Prepa) $9 billion debt sued the commonwealth over its intent to use the Recovery Act for the troubled utility. The federal district court decided in favor of the creditors, ruling that federal bankruptcy law preempts the challenged local statute. The Alejandro García Padilla administration quickly appealed the decision. Although upholding the district court’s ruling, the U.S. Court of Appeals for the First Circuit acknowledged the commonwealth’s law void under Chapter 9 after a murky technical amendment process back in 1984. However, it stated “Puerto Rico may turn to Congress for recourse,” since “Congress preserved to itself that power to authorize” Chapter 9 relief for the island. And indeed, the commonwealth

government has been in a yearlong lobbying blitzkrieg on Capitol Hill to achieve access on Chapter 9—yet to no avail as of press time Monday. Perhaps fueled by one of the appeal’s court judges who took part in the decision—Puerto Rican Judge Juan Torruella—the García Padilla administration decided to take a crack at the U.S. Supreme Court. While upholding that federal law preempts the Recovery Act, Torruella said in a way, Congress discriminated against the island back in 1984 and ran counter to the federal bankruptcy law’s uniformity principle. Nonetheless, Torruella’s argument could be irrelevant to the matter, legal analyst John Mudd told Caribbean Business, noting that the commonwealth government has technically never brought up Torruella’s view during the judicial process, meaning the court will Continues on next page

THURSDAY, DECEMBER 17, 2015 Continued from previous page likely consider the argument waived. Instead, the García Padilla administration is posing the following question: “Whether Chapter 9 of the federal Bankruptcy Code, which doesn’t apply to Puerto Rico, nonetheless preempts a Puerto Rico statute creating a mechanism for the Commonwealth’s public utilities to restructure their debts.” For their part, the creditor groups are asking whether federal law preempts the Recovery Act and whether the 1984 amendments “precluding Puerto Rico from using Chapter 9 of the Code allow Puerto Rico to enact its own version of Chapter 9.” In plain vanilla, still at the forefront is the federal preemption subject— whether the local law conﬂicts with the federal bankruptcy statute. A SPLIT? Many observers believe the Scotus hearings could take place by March, with a decision following by early summer. The commonwealth government must submit by mid-January yet another brief, or chance, to make its case to overturn the federal district court’s decision and enable the Recovery Act. Only eight justices would participate in the proceedings, after Supreme Court Justice Samuel Alito decided to recuse himself for undisclosed reasons. Some reports point to Alito holding Puerto Rico bonds. In predicting how the court could act, many observers focus on the justices’ perceived conservative, moderate or liberal stances. However, the Recovery Act issue may not fall along those lines. For instance, Mudd believes that since the matter is geared toward federal preemption, a majority decision may bring together justices from diﬀerent ideologies. A case in point could be a decision released this week on a California arbitration case, whereby the top court

went over the preemption doctrine. The recently delivered opinion, a 6-3 tally, had a mixed composition, with both liberal- and conservative-leaning justices on both sides of the decision. Puerto Rico’s case could resemble such a mixed composition. With Alito’s recusal, there is also the possibility of an evenly split ruling, which would have the effect of upholding the federal court decision. Although deemed as highly unlikely by many, if Puerto Rico secures access to Chapter 9, or a preliminary restructuring deal with Prepa creditors successfully materializes before the Supreme Court acts, the two Recovery Act cases may be judged moot, or having no future effect, thus providing no reason for the court to act. While awaiting the court’s action—or any type of relief for that matter—the clock continues to tick on the Puerto Rico government as it maneuvers through a brutal debt-service schedule and cash crunch heading into the summer. The commonwealth has been trying to hold consensual restructuring talks with different creditor groups, but so far has been unable to attain much, besides the preliminary agreement struck with Prepa creditors, which many believe is now hanging by a thread. What’s more, there is more uncertainty among already jittery creditors, who would rather wait to see how the Supreme Court cases and the commonwealth’s latest efforts to secure access to Chapter 9 play out. A stalemate in restructuring talks would certainly test the government’s ability to keep making debt-service payments, an avoid a default event that may trigger messy litigation. Moreover, others argue a Supreme Court decision would not only be about the Recovery Act’s enforceability, but also about the commonwealth’s ability to ultimately decide its own affairs under its existing political framework. �

The current U.S. Supreme Court (back row, from left): Sonia Sotomayor, Stephen Breyer, Samuel Alito and Elena Kagan. (Front row): Clarence Thomas, Antonin Scalia, Chief Justice John Roberts, Anthony Kennedy and Ruth Bader Ginsburg

Potential Litigation of GO Debt Payments an Uncharted Legal Territory BY EDISON REYNALDO MISLA

r.misla@cb.pr

possible default scenario on general-obligation (GO) bonds would send Puerto Rico and its creditors down an uncertain path where the court interpretation of the debt’s constitutional guarantees and available investor remedies remain unclear, at best. A policy paper authored by the Center for a New Economy (CNE) Public Policy Director Sergio Marxuach released last week raises the issue of slightly different wording for Article VI, Section 8 between the Spanish and English versions of the Puerto Rico Constitution. Article VI, Section 8 establishes the first claim by GO debt on commonwealth resources. Spanish version: “Cuando los recursos disponibles para un año económico no basten para cubrir las asignaciones aprobadas para ese año, se procederá en primer término, al pago de intereses y amortización de la deuda pública, y luego se harán los demás desembolsos de acuerdo con la norma de prioridades que se establezca por ley.” English version: “In case the available revenues including surplus for any fiscal year are insufficient to meet the appropriations made for that year, interest on the public debt and amortization thereof shall first be paid, and other disbursements shall thereafter be made in accordance with the order of priorities established by law.” The difference between “available resources” and “available revenues” could turn out to be significant for two reasons, according to Marxuach. First, the term “available resources” has been interpreted to be broader than the term “revenues” in several opinions issued by the Puerto Rico Justice secretary, thus allowing the commonwealth to pay GO debt with nonrecurring funds arising, for example, from issuing additional debt, asset sales or the liquidation of financial investments. In all likelihood, in a federal court setting the term “available

resources” will prevail, said San Juan Attorney John Mudd. “There are errors in the [English] translation. The bondholders in the U.S. understand this perfectly well,” he added. Mudd believes that federal court judges will defer to the Spanish version of the Puerto Rico Constitution. “In an issue as important as this one, you can be sure that the judges will look at this very carefully.” The Puerto Rico Supreme Court has never interpreted the term “available resources” in Article VI of the P.R. Constitution and there is no discussion of its meaning in the records of the proceedings of the Puerto Rico Constitutional Convention, Marxuach stated. The interpretation of Article VI is also important for the application of the so-called constitutional clawback, he noted. Article VI, Section 2 of the Puerto Rico Constitution raises the question of whether tax revenues that have been pledged for the payment of other obligations, including other bonded debt, constitute “available revenues” for the payment of GO bonds and are therefore subject to being clawed back to the general fund for their payment, he said. The commonwealth has assigned certain tax revenues to the P.R. Highways & Transportation Authority, P.R. Infrastructure Financing Authority, P.R. Convention Center District Authority and P.R. Industrial Development Co. It isn’t entirely clear if those pledged revenue streams are subject to the constitutional clawback and if creditors of these aﬀected bonds can sue the commonwealth if the payment source is diverted toward the general fund. To complicate matters further, in the case of GOs, there is the issue of multiple legal jurisdictions, particularly in the last $3.5 billion emission. “You could have a case on GO bonds on four diﬀerent courts at the same time: the New York Supreme Court, New York Federal Court, Puerto Rico Federal Court and First Instance Court,” Mudd explained. �

THURSDAY, DECEMBER 17, 2015

Poll

Sales of whiskey and rum are picking up

Sales of Alcoholic Beverages down as Holidays Approach BY ROSARIO FAJARDO r.fajardo@cb.pr

Although the “purchase incidence” for alcoholic beverages in Puerto Rico is down, this may soon change as Christmas and New Year’s approaches and more local residents purchase beer, wine and spirits. While Gaither’s Media Brand Proﬁles (MBP) study reveals that the purchase incidence of alcoholic beverages hasn’t shown an increase in recent weeks, it may soon change.

“I wish I had a crystal ball…. Let’s hope that as Christmas parties are organized, the category beneﬁts from increased purchases,” said Luis R. Burset, who is in charge of Gaither International’s Client Service Department in Puerto Rico. The Gaither data are based on results of the ﬁrst 10 days of December, which covers purchases in the past 30 days among individuals who consume alcoholic beverages. In general terms, purchases of any of these

segments are skewed to men in the higher lifestyle levels who are college-educated, Burset said. Beer, the largest alcoholic-beverage segment, registered a purchase incidence of 62.3% in the past 30 days, as of Dec. 10, 2015. When compared to the same period in 2014, the level was 71.1%, which is a decrease of 9.2 percentage points. This segment has been steadily declining month over month since January 2015.

Gaither said the only segment that reﬂects an increase in purchases is whiskey, growing from 5.9% to 7.2% for the stated periods. With a sharp decline by October 2015, this segment has quickly

picked up, sustaining growth in November and December, and reaching a purchase level close to that of March 2015, its highest in the past 20 months. In turn, rum and vodka report declines, from 16.1% to 12%, and from 7.2% to 2.4%, respectively. Nonetheless, rum turned around its declining trend in October and has sustained increases since. Vodka, on the other hand, lost the purchase incidence it had been gaining up to November, with December reﬂecting its lowest levels ever recorded. With a much lower purchase incidence,

tequila remained stable at 1.8% for purchases in the past 30 days, while gin grew slightly, from 1% to 1.2%. This change may be deceiving, as tequila’s purchase incidence has remained stable since October 2015, Burset said. The results are from Gaither International’s MBP tracking survey, which interviews more than 80 people daily from among a representative sample of Puerto Rico’s population ages 12 and older. �

Polling is conducted by Gaither International and results are reported by CARIBBEAN BUSINESS.

–Advertisement The members of the Litigation Department are: Xiomara Del Toro-Díaz, Ilia Pellot-Juliá, Luis Rivera-Román (Of Counsel) and Luis M. Pellot-Juliá.

Yadira Portalatín-Méndez, Jr. Shareholder, Luis M. Pellot-González,Shareholder, Janira Beltrán-Sellés, Shareholder, Yadira Portalatín-Méndez, Jr. Shareholder.

Pellot González:Ready to litigate

fter 26 years of providing the finest taxation and corporate law services to hundreds of corporate and individual clients, Pellot Gonzalez is proud to formally announce its Litigation Department. With this new addition to its array of high quality and ethical legal services, the firm aims to continue its contribution to the growth and financial health of its clients. While maintaining its roots as a boutique tax and corporate law firm, and growing for each new challenge, it has added a new dimension to its base of legal services combining experience, energy and capability that translates into better, more extensive resources available for its clients. The Litigation Department at Pellot-González is dedicated to the zealous and cost effective defense of its clients’ interests. With wide experience in both judicial and administrative proceedings at the state and federal level, its team of litigators is well

versed in negotiation and litigation avoidance, but also ready to successfully try a case when necessary. Based on the trust that stems from attorney-client privilege, a strategy is designed to aim at an early, advantageous settlement or success in court. The members of this division have excelled in matters involving tax litigation, commercial and contractual disputes, management defense in labor claims, estate law, construction law, property law, mortgage foreclosures, banking and torts. All litigators have the set of skills necessary for trial and appellate advocacy. Above all, the team has the conviction that hard work and preparation in advance are the true keys to success in litigation. In Administrative Proceedings, Pellot-González’ has been renowned for its representation of clients before the Puerto Rico Treasury Department, the Internal Revenue Ser-

vice and the Municipal Revenues Collection Center and Municipalities. It also has a wide range of experience in other agency proceedings. Clients have received Pellot-Gonzalez’s able assistance in matters before the Labor Department of Puerto Rico, the Department of Economic Development and Commerce, the Department of Consumer Affairs, the United States Patent and Trademark Office, the Puerto Rico Trademark Office and other forums. Besides their formidable trial advocacy skills, the litigation group members have also excelled in Appellate Practice. All of its members worked as judicial clerks in either the Supreme Court or the Court of Appeals of Puerto Rico. Of Counsel, retired Chief Judge of the Court of Appeals, Luis Rivera Román Esq. served in that forum for nine years. Furthermore, its attorneys have filed countless appellate briefs in a wide array

of cases. This expertise enhances their work as trial attorneys, for oftentimes, parties have to analytically predict the higher courts’ conduct in order to eﬀectively make their cases at the trial level. As always, Pellot-González’ team of dedicated attorneys will continue to assist clients in tax, estate, notary and corporate, employment and contractual matters, now up to the litigation stage. Pellot-González’ law oﬃces are located in 268 Ponce de León, Suite 903 at Hato Rey. More information can be found at www.pellot-gonzalez.com or by calling 787-250-6300.�

THURSDAY, DECEMBER 17, 2015

Media

Latin Media House launches new era in publishing in Puerto Rico with a new look for its publications and a positive cashflow in just one month of operation.

Losses Stopped at Latin Media House, Former Casiano Communications Inc. Like a Phoenix from the Ashes: First Operating Month Under New Leadership Ended with Positive Cash Flow BY MARIO BELAVAL m.belaval@cb.pr

The ambitious media project known as Latin Media House (LMH), under its new leadership, is making quick progress turning the company around. LMH CEO Heiko Faass said the new entity, publishers of Caribbean Business, Imagen, Buena Vida, and other publications, had a very positive start in its new life with the aggressive restructuring concept showing almost immediate results. “We have been able to immediately stop major bleeding and problems, and have achieved our ﬁrst month with a small but positive cash ﬂow. There is still a long way to go, but we are very happy with what we have achieved in a matter of four weeks,” said Faass, who is running the company on an interim basis until the already selected management team takes over. Among the immediate changes, readers of Caribbean Business have been witnessing cosmetic changes for several issues now, most visibly to the

December issue of Buena Vida

Latin Media House’s building was recently clothed with the first of a series of decorative meshes announcing a “brand new era in publishing.”

business newspaper’s cover page. In addition, content is being expanded and a focus on quality journalism is being implemented by Executive Editor Philipe Schoene Roura and his team, which was recently expanded with a prominent new member—Ismael Torres, who ran Associated Press for

18 years in Puerto Rico—and joined LMH as a Senior Politics Editor, focusing on expanding coverage into politics topics. A main point here will be coverage of U.S. mainland and Puerto Rican elections. Before the end of the year, Caribbean Business’ digital presence will also have been

December issue of Imagen

The sixth cover of Caribbean Business produced by Latin Media House

relaunched and drastically enhanced. To make a point of the company’s focus on digital, the Dec. 24 issue will be launched digitally only, a first in CB’s 40-plus years of history. In several promotions over the past weeks, visitors of the highly frequented Popular Center in San Juan’s Hato Rey district received the latest edition of CB at lunchtime, right off the press. “The feedback of our readers is simply fantastic,” Faass said. “Not only do we receive countless comments about our fresh new look, but people also acknowledge and dig our focus on quality content and efforts to provide extra value when they give us their time to read us.” Readers of the company’s flagship publications, Imagen and Buena Vida, who received the most recent December

issues, were also in for a surprise. The relaunch of those magazines is fully underway under the direction of Lifestyle Executive Editor Daymar Torres, and the latest issues look like any other leading international publication on newsstands at airports in New York, Paris, London, and Berlin. The covers and inside pages have been completely redesigned, the photo language improved and, before the end of the year, both publications will be available in digital format. “Any of these new editions, even I would buy,” Faass continued. “The new Imagen is on par with any Vanity Fair, Vogue or such magazine, and Buena Vida has become a very appealing product for anybody interested in health and wellbeing—and all are being produced in Santurce, Puerto Rico, for the world.” �

THURSDAY, DECEMBER 17, 2015

Autos

Local fiscal woes keeping autobuyers away from dealers

Local Auto Sales dip 4.3% in November Down 8.4% for the Year BY JOSÉ L. CARMONA josec@cb.pr

After a positive October, local new-auto sales returned to their downward trend in November, the latest monthly sales report by the United Automobile Importers Group (GUIA by its Spanish acronym) revealed last week. According to GUIA, some 7,061 new-units were sold in Puerto Rico last month, down by 320 units, or 4.3%, from the 7,381 units reported in November 2014. Fueled by a 178.5% increase in fleet sales, new-auto sales in Puerto Rico rose 12.4% in October—so far the local industry’s only positive month of the year. Fleet sales usually peak twice a year, in the winter and summer months, during the local tourism’s high seasons. For the year, new-auto sales as of November amounted to 72,066 units, down 6,601 vehicles, or 8.39%. “Last month was the 19th out of the past 20 months that new-auto sales were below the same month the previous year. Fleet sales basically didn’t reflect any changes with respect to November 2014, which are usually spurred by tourism activity,” GUIA President Ricardo García commented. Some 1,442 fleet units were sold last month, up a mere 1.5%, or by 21 units, versus the same month last year. Meanwhile, retail sales during November amounted to 5,619 units, down 5.7%, or 341 units versus the same month last year. CONSUMERS SHYING AWAY Rivera also expressed concern over retail sales at local dealerships. Customer traffic at local showrooms has decreased despite the arrival of 2016-year models, aggressive promotional efforts that include dealer discounts, manufacturers’ rebates and special tent-sale events. However, the possible reduction in the public employees’ working hours, or a full-fledged government shutdown seems to have put a brake on consumer spending plans during the critical holiday season. “Auto sales are logically a reflection of the direction taken by the local economy, including consumption and population trends. Our industry seeks to adapt to the times and therefore, we have been attentive to the retail sector, which so far this year has decreased its market share by 10%,” Rivera indicated. SUBCOMPACTS, COMPACTS DOMINATE Last month, the mini, subcompact and compact cars & sport utility vehicles (SUVs) continued to dominate the local market, representing 69.8% of

total new vehicles sold last month. With 1,879 units, the mini segment led the pack, with a 27.7% increase. It was followed by the compact SUV segment, which edged up 5% with 1,854 units.

The subcompact coupe and sedan segment moved 1,549 units, down 4.7%. Meanwhile, the compact premium SUV segment jumped 22.1% last month, with 94 units sold. �

THURSDAY, DECEMBER 17, 2015

Latin American Affairs Uncertain Future for Venezuela BY JUAN A. HERNÁNDEZ

Since conceding the Partido Socialista Unido de Venezuela’s (PSUV) defeat in last week’s election, Maduro has blamed the “economic war” waged by rich national economic elites for the outcome. “This tone suggests the government will continue its discourse on economic policy rather than

As all the excitement begins to wind down about the opposition’s win last week in Venezuela’s parliamentary elections, several political and economic power players are now trying to anticipate what the future will bring to this South American country, but all seem to agree that Plaza Venezuela station, “uncertainty” Caracas Metro is the word that best describes it. The election results had an immediate effect on international markets. Despite a sharp drop in oil undertake any changes,” prices last week, bonds according to JPMorgan. from both Venezuela and On the other hand, state-owned oil company the opposition, orgaPetróleos de Venezuela nized around the Mesa S.A. (PDVSA) appreciated de Unidad Democrática close to five percentage (MUD) coalition, has anpoints in the same pe- nounced they will push riod. Nevertheless, most the government to asinvestment firms are sume responsibility and cautious about the coun- put into effect economic try’s future and all tend measures such as stanto concur about the need dardizing the currency for some sort of agree- exchange. ment between President “We have the qualified Nicolás Maduro and the majority and will enforce National Assembly, now it responsibly, without dominated by the oppo- arrogance, without tramsition, to design a new pling on anyone,” said set of economic policies Jesús Torrealba, MUD’s that both can work with secretary general. without further stifling However, while considthe economy. ering such measures as The JPMorgan invest- “necessary” to stabilize ment firm anticipates Venezuela’s economy— there won’t be any eco- by shifting responsibilnomic changes in the ity for their enactment near future because to Maduro’s adminisboth parties have openly tration—MUD will try stated their intentions to to avoid being blamed stand their ground. for supporting any of

the neoliberal policies that had been vilified by “Chavismo.” But Maduro is already regrouping his troops. Last week, he started having meetings with state governors and ministers, PSUV’s national leadership and other political allies to identify the reasons for the defeat and to design a new action plan “to save the Bolivarian Revolution.” Who’s to be blamed for the defeat depends on who’s doing the blaming, and the reasons go from an inability to mobilize voters, to neglecting the needs of the people. Likewise, countermeasures to offset the effects of the election range from reorganizing community councils to enacting drastic economic reforms. There are already three workgroups at the Palacio de Miraflores that are responsible for designing new strategic plans to deal with a hostile National Assembly. The group in charge of designing the new phase of the economic plan is presided by Jorge Arreaza, while Elías Jaua presides over the group in charge of “the plan for a new policy.” The third is presided by Gilberto Pinto Blanco, Tania Díaz and Darío Vivas, and is charged with conceiving a plan for the National Assembly. �

SUCCESSFUL BUSINESS STORIES AND ANNIVERSARIES

SPECIAL FEATURE December 17, 2015 Pages 31-36

S P E C I A L

F E A T U R E

THURSDAY, DECEMBER 17, 2015

Fernando Arroyo President, Jani Clean Inc.

native of Mayagüez, Fernando Arroyo Ferrer grew up with a father who owned and ran a “cash & carry” supermarket, while his mother was a pharmacist. These examples of professionalism and a sense of responsibility were ingrained in Arroyo since childhood. Starting at age 18, he worked in his father’s store through college at the University of Puerto Rico-Mayagüez campus, where he completed his degree in industrial engineering. At the store, he filled the roles of administrator and buyer. In 1990, Arroyo and his father founded Jani Clean, the company he proudly leads as president. The one piece of advice his father gave him from the get-go was: “Always be honest with yourself and everyone else.” This dictum he follows in every transaction he makes, whether in his personal or professional live. Arroyo has an inspiring passion for his work. No matter how hard the day may be, being at the helm of his company grants him enough creative space to always devise new fields in which to expand cleaning services and to offer new services to clients to better serve them. Customer satisfaction must always be the No. 1 priority in his field since this keeps clients coming back to Jani Clean and helps the company grow as others identify Jani Clean’s level of excellence and make calls to request services. Recognizing that no achievement can be reached without help from his team, he said, “This can’t be a one-person show; if it were, our team members’ work would be much more limited. They need power to solve and execute their responsibilities. We discuss ideas and bounce them back and forth, and I try to coach them as much as possible to keep the challenges clear and the achievements possible,” Arroyo said. He is a very driven individual; this may be the result of not only

the strict education from his parents, but also because, during his youth, he was a basketball player, which provided him with a sense of trust in teamwork while pushing him to do his best. Arroyo admits, however, that even during leisure times, he sometimes finds himself thinking about the business, but there also are many moments he spends with his wife and three daughters. The family enjoys traveling locally and internationally. Although he may not have much time for basketball or other sports, Arroyo looks forward to getting out to the golf course again some day. For now, he would rather give those free times to his family since they are his inspiration. Jani Clean has seen its fair share of hardships during these trying economic times, and the number of clients has decreased since so many of them have been forced to close or move operations elsewhere. To face this challenge, Arroyo increased the company’s visibility and approached clients with new offers. As a result, Jani Clean’s clients have bonded with the company, and this closer relationship has increased sales while also resulting in superior client satisfaction. New corporate divisions also have been established to cover all clients’ janitorial needs. “Technological growth is very important in this business,” Arroyo said. “We use technology to ensure better service. All data are collected and stored so the team can best assess and implement its strategies. We don’t work in our own environment; we literally do our job in clients’ workplaces. This means they expect perfection and respect of their property, which is something for which we always strive. Technology and individual attention to details are what have made us grow even during these difficult years,” Arroyo concluded. Arroyo has a very positive outlook

about Puerto Rico’s future. Working with many companies in such different fields, he has a sense of hope about the future. For this outlook, he advises young professionals to learn to take things slowly, because success doesn’t usually come fast; it is the result of persistence and focused dedication. In this era, when technology makes everything faster, most times, Arroyo said, people miss that success doesn’t come from doing things quickly. Success comes from making clients happy. �

Celebrando 25 Años de servicios

“Gracias a todos nuestros clientes y empleados, son ustedes la razón del exito de Jani Clean” • Servicios de limpieza y desinfección • Servicios de Mantenimiento de áreas verdes • Servicios de aplicación de pintura • Servicios de *Handyman * • Servicios de Mantenimiento de pisos (lavado, encerado, sellado, brillo y cristalizado) • Venta de luminarias (bombillas) • Venta de productos y equipos de limpieza • Servicios de eliminación de humedad, hongos y mohos • Servicios de limpieza de todo tipo de alfombras, entre otros. Llamenos para consulta sobre nuestro servicio de inspeciones y encuestas de calidad utilizando lo último en técnologia y medición

INSPECCIONES Y ENCUESTAS DE CALIDAD utilizando lo último en tecnología

–Fernando Arroyo Ferrer Presidente Jani Clean, Inc.

Configuración personalizada en el sistema Inspecciones mensuales Evaluaciones por áreas Reportes de hallazgos Encuestas de satisfacción al cliente Acciones correctivas y preventivas (CAPA) Planes de trabajos digitales

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Oficina y almacén, William F. Brennan St. Guanajibo Industrial Park #1135 Mayagüez, P.R. 00681 Tel. 787-833-8440 / Fax. 787-833-6130 Oficina y almacén, Calle César González # 276 Hato Rey, P.R. 00918 Tel. 787-767-2562 / Fax. 787-767-6223 Email:customerservice@janiclean.com

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THURSDAY, DECEMBER 17, 2015

AbbVie launches TV commercial filmed in Puerto Rico for Synthroid BY CB STAFF

any people who have hypothyroidism aren’t aware that they have this condition, characterized by an underactive thyroid gland, which doesn’t produce enough thyroid hormone. Synthroid (levothyroxine sodium tablets, USP), manufactured by AbbVie, is one of the treatment options to help control hypothyroidism. With that in mind, the company recently launched its first Synthroid brand TV commercial filmed in Puerto Rico to promote the product in the local market. “We are proud to launch this TV production today, presenting Synthroid as a treatment option for hypothyroidism, a condition that at times, patients may not even know they have,” said Felipe Palacios, general manager of AbbVie Puerto Rico’s Commercial Affiliate. “Through the commercial we encourage individuals to talk with their healthcare providers, and if Synthroid is the treatment the doctor prescribes, to please check their pills to assure Synthroid is what they do receive.”

Synthroid, a prescription, manmade thyroid hormone, is used to treat hypothyroidism, except in cases of temporary hypothyroidism, which is usually associated with an inflammation of the thyroid gland (thyroiditis). Synthroid is meant to replace a hormone that is usually made by the thyroid gland. Generally, thyroid replacement treatment is to be taken for life. Hypothyroidism affects millions of people in the U.S. and as many as 10% of women may have some degree of thyroid hormone deficiency. The thyroid gland is a butterflyshaped endocrine gland located in the lower front of the neck, which produces thyroid hormones that help regulate certain functions of the body. Hypothyroidism, whereby a person has an underactive thyroid gland, is a common condition in which the thyroid gland can’t produce enough thyroid hormone to keep the body functioning properly. The TV commercial, filmed entirely in Puerto Rico, presents scenes that were filmed in the mountainous areas of the Cayey municipality, as

Felipe Palacios, general manager of AbbVie Puerto Rico’s Commercial Affiliate

well as the San Juan metropolitan area. The production company for this TV spot was Digital Media Television. All crew members and talent involved in the commercial are from Puerto Rico, through which AbbVie contributes by carrying a strong message to the Puerto Rican community about Synthroid as a treatment option for hypothyroidism. The 90-second Spanish language commercial will air in Puerto Rico’s local television stations and cable TV during the next few months. AbbVie is a global, research-based biopharmaceutical company formed in 2013 following its separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated staff and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. Together with its wholly owned subsidiary, Pharmacyclics, AbbVie employs more than 28,000 people worldwide and markets medicines in more than 170 countries. �

THURSDAY, DECEMBER 17, 2015

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GM Security Technologies Opens State-of-the-art Critical Response and Replication Center for Northern Latin America

BY CB STAFF

M Security Technologies, the fastest-growing security and technology company in northern Latin America, opened its newest Critical Response & Replication Center (CIRRC) to provide managed security services and solutions to companies in the region. The ultra-modern facility, located at GM Security Technologies’ headquarters in San Juan, allows clients in such countries as Panama, Costa Rica, Colombia, Ecuador and Dominican Republic full visibility of their corporate environments, as well as preventive and forensic management of vulnerabilities and threats. The CIRRC, built with an investment that surpasses $3 million, is a next-generation facility with the capacity to store, monitor and analyze customer data, enhancing automation in hybrid cloud and “Big Data” models. Among the new center’s capabilities are global visibility of cyberattacks through more than 8 million sensors and “honey pots” in production, in addition to a Live

impressive birds-eye view of the state of global risk of cyberattacks. This is GM Security Technologies’ third CIRRC, which rounds out the company’s portfolio of end-to-end redundant data-replication centers. This strengthens its already robust infrastructure, which has been developed over the past seven years through an investment of more than $10 million. According to Héctor Guillermo Martínez, executive vice president of GM Security Technologies, this facility is the result of the company’s leveraging its pedigree of leadership in both the technology and the security industries, garnered through a decades-long trajectory of developing and acquiring leading players such as General Computer and St. James Security. Their combined knowledge From left, Héctor Guillermo Martínez, executive vice president of and expertise has allowed GM SecuGM Security Technologies, and Gov. Alejandro García Padilla tour rity Technologies to develop a model the new Critical Response & Replication Center Facilities that can serve Latin American companies with outsourced security services Threat Intelligence console that maps world map on display at the center to strengthen their environments in the latest attack vectors, risk ratings continuously updates staff regarding three key areas: visibility, analysis and developments regarding the de- ongoing attacks, including the source, and action. tection of malware. A large-scale type and location of live threats for an Continues on page 36

Jobs available for

Fully Bilingual Persons Puerto Rico’s 24/7/365 Bilingual Call Center

Call: 787-268-8500

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Continues from page 35

“Our services and solutions go beyond traditional security because internal information security is no longer enough to keep companies safe. Through our new CIRRC, we can offer clients a better understanding of how to access information and how to safely use data and expose their vulnerabilities to prevent breaches,” Martínez said. The CIRRC’s combined process analysis and correlation of data from multiple areas, devices and technologies within organizations create a comprehensive and focused vision of the many variables that influence daily operations in a continuous 24hour cycle, seven days a week and 365 days a year. In addition to the CIRRC, GM Security Technologies inaugurated an

THURSDAY, DECEMBER 17, 2015

Executive Briefing Center, exclusively appointed to offer Latin American customers access to industry-leading technologies. The briefing center is equipped with all amenities clients may need to set up remote operations during a disaster recovery scenario to ensure business continuity, Martínez noted. “The combination of an Executive Briefing Center, Critical Response & Replication Center and development laboratories located within the same installation is an investment in innovation that strengthens GM Security Technologies as a leader in its strategic Latin American markets,” he said. The company is eager to grow and expand with the objective of becoming a business ally to companies that search for a critical response center and world-class replication located in a safe jurisdiction, he explained. �

Guillermo Martínez, founder of GM Security Technologies and Gov. Alejandro García Padilla

At Valdés, García, Marín & Martínez, LLP we are all about S E R V I C E. 0ur Business Solutions Division provides a wide range of services that inlclude: ✔General Accounting ✔Payroll Processing ✔Sales & Use Tax Support ✔Business Start-up and Registration ✔Representation before Government Agencies Call us and meet our team of professionals. They have the knowledge and technical skills to help you find solutions to comply with constantly changing laws with greater ACCURACY, RELIABILITY and COST-EFFECTIVENESS.

SPECIAL FEATURE December 17, 2015 Pages 37-41

“ Based in San Juan, Puerto Rico, Interamerican Imports Inc. aims to provide local consumers with a wide and unique variety of wines, spirits and all sorts of consumer goods from around the world. Representing over 70 brands, our product portfolio consists of quality wine, distilled spirits and beer labels that accommodate all personal tastes and budgets. With the help of our sales team, we sell our products to supermarkets, restaurants, liquor stores and individuals around the island. We believe in the quality reputation and authenticity of our award winning products, like we do with the traditional Mexican, Agavales 100% Blue Agave Tequila and our Premium Real Russian Vodka; awarded 92 Points in taste tests by the prestigious Wine Enthusiast Magazine and The Tasting Panel Magazine. For the wine connoisseur, Interamerican Imports Inc. holds distribution exclusivity rights with some of the best wine bodegas from Spain, South American and Napa Valley. From the Spanish Bodegas of Frutos Villar and Joan Baqués to Callaway Wines and Bread & Butter in Napa, California; we are sure to provide a great wine for any occasion, at the best value! “

TEL. 787-919-3161 / 787-919- 3160 FAX. 787-919- 3163 1509 López Landrón Suite 500 San Juan, Puerto Rico 00911-1952 interamericanimports@gmail.com

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THURSDAY, DECEMBER 17, 2015

Johnnie Walker

Presents its Special Gifts for the Holiday Season BY CB STAFF

BerryMerryCocktail with Johnnie Walker Red Label

uring the holidays, everyone wants to enjoy a good whiskey and that is why for the year-end holiday season, Johnnie Walker presents gift options for you to surprise your loved ones. Red or Black Label, Johnnie Walker is always that sure and perfect gift for the holidays. Take Johnnie Walker Black Label, the enigmatic blend of scotch whiskey aged for a minumum of 12 years, distinguished for its smoky and dry aroma, blended with the sweetness of raisins and the refreshing touches of orange and citric oils. Now picture a special gift package that includes a Johnnie Walker Black Label bottle, a rock glass and an ice mold in the shape of a sphere, so that the true whiskey lover in your life may enjoy it in an elegant manner. Meanwhile, for those who enjoy coming up with their own mixes, there’s Johnnie Walker Red Label, specially created for cocktails. Its smoky, spicy and vanilla taste is highlighted when mixed with a variety of fruits and juices. That’s why the special package includes a bottle of Johnnie Walker Red Label and a highball glass. Both packages are limited editions designed by Aaran Gregory, the British sculptor renowned for his work in crystal that is inspired by wildlife. The holidays in Puerto Rico are defined by sharing with friends and family, with good food and drinks. Enjoy them with Johnnie Walker! Johnnie Walker is distributed in Puerto Rico by Méndez & Co. and is available in commercial establishment throughout the island as well as in Bodegas de Méndez, located in Guaynabo (787-277-5880), Añasco (787-826-7570) and Ponce (787651-1999).

1 ½ oz. Johnnie Walker Red Label Cranberries (to taste) 1 spoonful of honey Club Soda Mint leaves Procedure: Place the cranberries in the glass, add honey and lightly mash the mix. Add Johnnie Walker Red Label, shake the ingredients in a shaker and filter the con contents in the glass. glasss. Fill the glass gla with club sodaa and garnish with a mint leaf f. leaf.

Jingle Black Cocktail with Johnnie Walker Black Label 1 ¾ oz. Johnnie Walker Black Label 2 pieces of pear 2 pieces of green apple A teaspoon of simple syrup

Procedure: Put the apples and pears in the glass with the syrup and macerate. Add Johnnie Walker Black Label and mix gently. Garnish with thin slices of pear and apple.

THURSDAY, DECEMBER 17, 2015

Grey Goose VX vodka: A whole new level of luxury

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BY CB STAFF

Vodka of the highest order and category, that is what Maître de Chai François Thibault has searched for and achieved with the new Grey Goose VX, a distillation of exceptional quality that combines the world’s best tasting vodka with a touch of the best cognac. Thibault had already expressed his passion about the craft production of spirits of the highest level with the creation of Grey Goose vodka, with the finest French ingredients: winter wheat from the Picardie region, the same one used in the best pastries and spring water from Gensac-La Pallue in the Cognac region, which is naturally filtered through limestone and through an exclusive distillation process, becomes a specially smooth vodka. From that original Grey Goose, Thibault has taken a bold new step with the creation of VX, adding some drops of cognac of the highest quality produced from Ugni Blanc white grapes from the Champagne region, reserved for the best brands. The result is a luxurious beverage in limited production that is presented in a bottle inspired by the French liquor decanter, manufactured with a special kind of glass and very elegant cap. �

THURSDAY, DECEMBER 17, 2015

Politics

P.R. politicians scrutinize federal control board legislation

Proposed fiscal control board viewed with political apprehension BY ISMAEL TORRES i.torres@cb.pr

The proposed Federal Board for Fiscal Control, presented by Republican Sens. Orrin Hatch (Utah), Chuck Grassley (Iowa) and Lisa Murkowski (Alaska), which includes powers that override the Puerto Rico Constitution and decides the budgets of local government agencies, has been received with caution by diverse political sectors on the island. The proposal from the chairs of the federal Senate committees on Finance (Hatch), Judiciary (Grassley) and Natural Resources (Murkowski), which would be a sort of supervising entity between the local and federal governments, would also have the ability to revoke financial decisions made by the governor and the legislative and judicial branches. The Governor & Popular Democratic Party president, Alejandro García Padilla, has held back from criticizing the proposals because he understands that its presentation allows the start of discussions regarding Puerto Rico’s fiscal problems. “We can’t wait any longer. We aren’t looking for an economic rescue from the federal government, but the tools needed to finish the economic recovery work [of Puerto Rico],” the governor said. Without going into an

evaluation of the measure, the governor said, “what we are looking for…is a mechanism to solve the problem, not to postpone it.” The resident commissioner & NPP president, Pedro Pierluisi, said he would combat the proposal but also would take the opportunity to see that the

the P.R. Senate, Eduardo Bhatia, and the speaker of the P.R. House, Jaime Perelló, the proposals presented before the U.S. Senate are unacceptable; however, they recognize that the action represents an interest by federal legislative spheres to attend to Puerto Rico’s critical ﬁscal situation. “I don’t have any prob-

powers over Puerto Rico… basically in exchange for an allocation of funds whose sole purpose is to ensure payment to bondholders in the short term, and leaving other future initiatives to consider up in the air.” He added, “One of the most signiﬁcant failures of both proposals is imposing a ﬁscal control

issue about the island’s ﬁnancial crisis reaches Republican senators and representatives. He pointed out that there are ongoing negotiations regarding the proposed Fiscal Control Board to adjust it to Puerto Rico’s political and judicial realities because, as it now stands, the board would “usurp our ﬁscal powers.” For the president of

lems with Congress legislating a ﬁscal control board, but that board has to guarantee the full participation of the people and protect [Puerto Rico’s] Constitution,” Perelló said. Meanwhile, Bhatia said, “It is shameful that Congress made such an indignant proposal…. Not a single Puerto Rican should accept a ﬁscal control board with so many

board [on Puerto Rico] without giving us all the tools we need to get over the crisis.” The former House speaker & current New Progressive Party (NPP) spokeswoman, Jenniﬀer González, said she agreed with Sen. Grassley’s expressions when he said “Puerto Rico’s ﬁscal problems are the result of excess spending and poor management.”

For the former House president & leader of the local Republican Party, the proposal demonstrates that Congress not only mistrusts the eﬀorts of the Puerto Rico government, but also the conduct of the Legislature because the proposed board would review all laws approved by the local Legislative Assembly. “Markets, Congress and the federal government are aware of what is happening here, and to instruct the board to review our legislation is another acknowledgment of the lack of precision in legislative matters with the current Legislature. They have shamefully placed us in receivership,” González said. For Ricardo Rosselló, a contender for nomination as the NPP’s gubernatorial candidacy, “the assistance plan has some conditions we don’t agree with, but we will continue the dialog and negotiations to reach a viable solution that allows Puerto Rico to attend to these problems with real solutions that don’t destroy our credibility and allows us to recuperate and improve our economy,” he said. He added that the proposed board, or other entity, should respect the autonomy of the government of Puerto Rico and provide a ﬁveyear term to achieve the objectives of the government reform. “Although we don’t have elective positions, we work to achieve the best outcomes for our island, because if we continue on the current political leadership’s path to bankruptcy, taxes and

nonpayment, we will fall into an economic abyss that will be difficult to rise from in the coming decades,” Rosselló said. The former candidate for governor & secretary general of the Puerto Rican Independence Party, Juan Dalmau, said this proposal, far from effectively confronting Puerto Rico’s fiscal and economic crisis, makes it worse because it doesn’t provide an effective mechanism to resolve it. “This is the most recent colonial humiliation, previously concealed by the commonwealth’s alleged fiscal autonomy, which is now manifested in all its crudeness with a receivership of the [U.S.] government over Puerto Rico’s financial affairs that this represents. This is a throwback to the days of the military government after the invasion in the late 19th century,” he said. Meanwhile, political analyst & former Popular Democratic Party senator, Marco A. Rigau, reacted indignantly and upset about Puerto Rico’s political class related to its position on this issue. “I feel ashamed about the Puerto Rican political class,” he said. “That this political class is willing to subject itself to indignation in exchange for money is beyond words.” As one who studiously follows Puerto Rican politics, he said that accepting this proposal “is to deny all the centurylong struggles for more self-government…and a lack of creativity to come up with politically dignified proposals. It is to elevate indignity to the level of principles,” he said. �

THURSDAY, DECEMBER 17, 2015

Book Review

‘Tirando al Medio’ gives a fascinating blow-by-blow political account, while rallying against the author’s usual suspects

Latest Dávila Colón book chronicles recent history through anticolonial lenses BY DENNIS COSTA d.costa@cb.pr

For nearly four decades, Luis Dávila Colón has been among the most well-known political analysts in Puerto Rico, consistently pulling in high ratings as a radio commentator in part because he has cultivated an outsider persona opposed to what he calls a “colonial mediacracy.” Dávila Colón frequently rallies against the alleged inﬂuences of a biased media in favor of Puerto Rico’s commonwealth status—called “colonial” by detractors—and the political institutions

that support it, particularly the Popular Democratic Party (PDP). One particular target, San Juan-based news conglomerate Grupo Ferré Rangel (GFR) Media, has often been in his sights, with the political commentator cataloging the company, and specifically the editorial line of its main newspapers, as one of the main factors in the island’s current political and economic travails. Such a thesis not only pervades Davila Colón’s latest book, “Tirando al Medio: Faenas de la Prensa Colonial,” but also suﬀuses every word.

Its title, which roughly translates to “putting someone on the spot,” aims to do precisely that, at least in terms of how the “colonial” press has manipulated public opinion. Whether the book, his 12th, actually achieves such a goal is debatable. It’s certainly not the ﬁrst time Dávila Colón has broached the topic, having done so in previous books, such as “La Dictadura de la Prensa” and “Justicia Roja.” Despite this, Dávila Colón’s latest—his ﬁrst in seven years—is arguably his most ambitious book yet, combining his

“Tirando al medio....” which roughly translates into “Putting Someone on the Spot”

constant criticism of GFR Media and like-minded media outlets with a full chronicle of Puerto Rico’s politically and economically tumultuous years from 2001 to 2012. When it comes to the latter, the book simply shines, oﬀering a painstakingly researched account of the political

maneuverings and rivalries between and within the island’s main political parties. Those uninitiated in the workings of Puerto Rico’s “true national sport” (and who can read in Spanish) are well-advised to pick up this book for that reason alone. Almost equally interesting are the passages dealing with the local press’ stance in its coverage of key events, as well as developments surrounding the fate of other news outlets aiming to oﬀer a counterpoint to the moreor-less oﬃcial media narrative. “Tirando al Medio” also levies plenty of criticism against the usual suspects in Dávila Colón’s oeuvre. For every sentence detailing political goings-on, the text highlights the alleged spin that the press gave

to such developments. As a result, the book sometimes tries to cover too much ground, with some passages reading like an extended diatribe. A book that tries to achieve some semblance of objectivity, this is not. Dávila Colón is prostatehood; he makes no bones about it. Whether you share his political views will inﬂuence your degree of enjoyment of the material (pointedly, the book also criticizes the New Progressive Party, Puerto Rico’s de facto pro-statehood party, for its alleged colonial mindset.) However, the research and eﬀort involved in “Tirando al Medio” is certainly apparent, and make up for a mostly fascinating read that will partly serve as a preview for the madness that lies ahead during the 2016 elections. �

THURSDAY, DECEMBER 17, 2015

Technology

Holiday season for online shoppers could be ‘hunting season’ for cybercriminals, unless preventive steps are taken

Cyberattacks Ramping up During Holiday Shopping Season Cross-Site Scripting, Shellshock and Heartbleed the Most Prevalent Attacks in Puerto Rico BY DENNIS COSTA d.costa@cb.pr

Amid the holiday retail season and with online shopping playing an increasingly larger role, so have the number of cyberattacks and hacking intrusions designed to steal valuable information from consumers and use them with criminal intent, according to a top cybersecurity expert. Derek Manky, global security strategist at Fortinet, a network security ﬁrm, told Caribbean Business that, as customers log in more frequently to online shopping sites, their exposure to hacking attacks increases. “Cybercriminals are becoming increasingly smart with their attacks, in part by employing diﬀerent tactics on the hacking side instead of trying to mislead end users,” Manky said. One of the more prevalent attacks taking place involves “keylogging” software that can quietly infect an unwitting user’s computer and basically installs itself. The malicious program (also known as “malware”) then records every keystroke made by a computer user, including password inputs, and sends the information to the cybercriminal.

A notable example of this type of malware is called njRAT (RAT stands for Remote Access Trojan). The Trojan, inspired by the Trojan horse leg-

by specialty publication SecurityWeek. Another trend on the rise is a type of malware called ATS (Automated Transfer System). In

Derek Manky, global security strategist at Fortinet

end, is a seemingly inoﬀensive program that, once it advances beyond a certain line of defense, carries out its harmful payload. In the case of njRAT, there have been millions of attacks detected worldwide in the past few years, Manky revealed. Apart from logging keystrokes, njRAT programs are capable of downloading and executing ﬁles, providing remote desktop access, stealing application credentials and accessing the infected computer’s webcam and microphone, according to an article

simple words, the program is able to carry out automated online banking fraud in a way that requires minimal input from cybercriminals. “Instead of having the attacker get login information to access a victim’s bank account and doing a wire transfer, the malware does it automatically from the infected machine in random, small batches,” Manky explained. Statistics compiled by Fortinet and corresponding from August 2015 through early November show that more “traditional” types of

cyberattacks are particularly prevalent in Puerto Rico. One of these is an old standby among cyberattacks called “cross-site scripting,” or XSS, with about 79,000 hacking attempts of this type detected on the island alone. The attack essentially lets a cybercriminal exploit any vulnerabilities on a legitimate website to “inject” a malicious package. For example, the criminal could enter several lines of code that comprise a certain type of program (called a “script”) into the search bar of a legitimate website. The script would bypass the website’s security controls and essentially sit there, waiting for a victim to logon to the website and infect the victim’s computer. Other prevalent attacks in Puerto Rico are related to two vulnerabilities called Heartbleed and Shellshock, with 48,000 and 23,000 recent attempts, respectively, to exploit both vulnerabilities, Manky

revealed. Shellshock concerns several programming errors (also called “bugs”) found in a widely distributed program called a command-line interpreter, also known as a “shell.” Meanwhile, the Heartbleed vulnerability is located within a program called OpenSSL (the acronym stands for Secure Sockets Layer). Ironically, OpenSSL works as a security tool that prevents eavesdropping on internet users. Another oft-used attack is called Crypto– wall Ransomware, with 79,000 recent attempts being detected in Puerto Rico. The Trojan basically encrypts crucial files, effectively blocking users from accessing their data. Then, as its name suggests, the ransomware demands a payment, usually $500, to recover the encrypted data, according to security software firm Enigma Software. However, the chances of falling victim to data theft can be kept under

check if users carry out some basic “cyberhygiene” practices, Fortinet’s Manky said. “The best mantra that users can keep in mind is ‘think before you link,’” he noted. “One needs to make sure that the link is going to a true, secure website before clicking on it, especially if the link is part of an email message. It’s also a good idea to have a diﬀerent password for each shopping or online banking site you frequently visit.” Other recommendations include carrying out transactions only from websites that display a picture of a lock next to its address, which should start with the acronym “HTTPS”; make purchases only on recognized websites; use elaborate passwords that include uppercase and lowercase letters, numbers and special characters; use security software; and frequently carry out updates and patch installments for the computer’s operating system. �

“One needs to make sure that the link is going to a true, secure website before clicking on it, especially if the link is part of an email message. It’s also a good idea to have a diﬀerent password for each shopping or online banking site you frequently visit.” —Derek Manky

THURSDAY, DECEMBER 17, 2015

Ad Calendar Marketing Now online! Need more frequency for your b-to-b campaign? Your directory listing and display ad on the new CARIBBEANBUSINESS.PR website allows you to keep your product or service in front of potential users 24/7/365. If you’re advertising in this weekly print edition, you’ll enjoy great “combo” rates!

New store to open at Plaza del Caribe Mall in Ponce

Reebok FitHub to Open First Store in Puerto Rico BY MARIO BELAVAL DÍAZ m.belaval@cb.pr

Reebok will open its first Reebok FitHub store in Puerto Rico this weekend in Plaza del Caribe Mall in Ponce. The store features a concept in line with the brand’s current marketing and advertising efforts, which in turn reflects a back-to-basics, hands-on and

holistic approach toward fitness. Earlier in the year, the company launched its “Be more human” campaign, which appeals to people who have made fitness a part of their lives and work hard at it. Thus, Reebok FitHub stores are decked out to resemble a gym, from the floor mats to the general décor. As with other Reebok FitHub stores around the world,

as outside the store.” For the opening on Saturday, Dec. 19, 2015, the store will hold CrossFit exhibitions by CrossFit Ponce and Aggressive CrossFit, and people will be able to meet and greet Emmanuel Maldonado, the ﬁrst and only Puerto Rican to have reached the CrossFit Games in 2014. Pérez Laspiur explained that Reebok’s current delta-shaped

the Ponce location, which covers some 2,000 square feet, will be more than just a place to shop, but a center where people may find all things related to a fitness lifestyle, said Marcos Pérez Laspiur, country manager for Reebok Puerto Rico. “The fitness movement has really grown in Puerto Rico, especially with concepts such as CrossFit. We wanted to bring to Puerto Rico the dynamic, innovative concept of Reebok HubFit, where people can find not only the products they are looking for, but also other resources for that lifestyle,” said Pérez Laspiur, adding that Reebok is a sponsor for CrossFit. “For example, the stores have what we call activity boards, where people can find out about fitness-related activities taking place within as well

logo stemmed from the sponsor relationship the brand has with CrossFit, but that eventually it was adopted to represent the pillars the brand stands for: positive change and the development of individuals through physical, mental and social well-being. “Much more than a logo, it is a symbol of what we stand for,” said Juan Gumá, marketing specialist for Reebok Puerto Rico. “As a ﬁtness brand, we aim to motivate athletes and everyday people who want to stay ﬁt, to demand and bring out the best in themselves to not only transform their bodies, but also their lives, to be better human beings.” Reebok is part of the Adidas Group, which acquired the company in 2005 for $3.8 billion. �

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