Puerto Rico's Public Relations Headache
Puerto Rico, on the brink of massive municipal bond defaults, has committed the trifecta of public relations sins: misdirection, finger-pointing, and political infighting.
And a flailing communications strategy is no small problem for the struggling commonwealth, where a cohesive message is absolutely critical to gaining investor confidence.
Puerto Rico’s ability to issue debt was built upon a Tinker Bell-like faith that commonwealth officials would pay its debt no matter what – that they would go so far as to allow the territory to descend into chaos by forgoing paying police, teachers and trash collectors – before they let state-side investors lose a dime. People had confidence that Puerto Rico would pay back its debt not because the territory had a growing economy that would fund spending, but because, well, officials (and the constitution) said they would.
And that makes what people believe about Puerto Rico – the message it sends to the public – all the more important.
Continuing to keep the market’s trust as public corporations ran out of money would have been no small feat in any case. But officials, despite an increase in conference calls with investors, didn’t even seem to try; they opted instead to actively undermine their own credibility.
The evening before Governor Alejandro Garcia Padilla introduced a 133-page bill that would allow Puerto Rico’s public corporations to restructure, the Bond Buyer reported that an unnamed official from the Garcia Padilla administration said that the governor did not at that time support legislation to allow public corporation bankruptcy.
Sure, Garcia Padilla could argue the statement was technically true. While unveiling the bill, which explicitly states that it has “adopted a model similar to Chapter 9,” he said that it wasn’t a bankruptcy law. Maybe there’s an argument to be made that it’s a legally distinct form of restructuring. But that’s a quarrel for the courts. Offering the media a piece of information that wasn’t a lie, but failed to tell a vital part of the story, could go a long way toward undermining public trust.
A few days later, Moody’s Investors Service pointed out the obvious. “The new law clearly signals the political and economic limits in its ability to fulfill [all of its debt] obligations,” the ratings agency said when cutting Puerto Rico’s general obligation bonds three more notches into junk bond territory.
Instead of admitting its mistake and committing to more transparency, Puerto Rico played the blame game. Moody’s was the enemy, besmirching the commonwealth’s good name. “That credit agency, and any other entity acting alike, will have to answer for this offense,” Garcia Padilla said, threatening to sue the ratings company. Such a case would be virtually impossible to win and the move made Puerto Rico look like it was trying to shift the public’s focus, rather than deal with the situation at hand.
Adding to the poor public perception was government officials’ failure to put up a united front. The governor and Pedro Pierluisi, Puerto Rico’s congressional representative in DC, hail from opposing political parties. And they’re not shy about airing their disagreements publicly. Pierluisi appeared blindsided by the restructuring law, and has proposed instead asking Congress to extend Chapter 9 to Puerto Rico. In a release ostensibly highlighting Pierliuisi’s meetings with ratings agencies to talk about Puerto Rico’s “great future,” Pierluisi talks about “errors that have been made by the current government” including “unwisely imposed” taxes.
And that’s the point. Selling that “great future” has become a lot tougher when the central information officials are getting to the public is that they’re bungling their message, whatever it is.
Simone Baribeau is a senior reporter covering US territories, non-profit hospitals, stadium financing, and Florida for Debtwire Municipals. She has been covering municipal finance since 2010 and can be reached at simone.baribeau@debtwire.com.
This post is brought to you by Debtwire, a Mergermarket company, the leading provider of real-time intelligence, analysis and data on distressed debt, leveraged finance and asset-backed markets. The team at Debtwire is comprised of financial journalists and credit analysts with considerable experience covering trading, law and investment banking. Our reach is global, with separate products covering North America, Europe, CEEMEA, Asia-Pacific, Latin America, ABS and Municipals. For more information regarding Debtwire visit www.debtwire.com.
By Simone Baribeau
Puerto Rico's Public Relations Headache
And a flailing communications strategy is no small problem for the struggling commonwealth, where a cohesive message is absolutely critical to gaining investor confidence.
Puerto Rico’s ability to issue debt was built upon a Tinker Bell-like faith that commonwealth officials would pay its debt no matter what – that they would go so far as to allow the territory to descend into chaos by forgoing paying police, teachers and trash collectors – before they let state-side investors lose a dime. People had confidence that Puerto Rico would pay back its debt not because the territory had a growing economy that would fund spending, but because, well, officials (and the constitution) said they would.
And that makes what people believe about Puerto Rico – the message it sends to the public – all the more important.
Puerto Rico Vista (Photo credit: trishhartmann)
The evening before Governor Alejandro Garcia Padilla introduced a 133-page bill that would allow Puerto Rico’s public corporations to restructure, the Bond Buyer reported that an unnamed official from the Garcia Padilla administration said that the governor did not at that time support legislation to allow public corporation bankruptcy.
Sure, Garcia Padilla could argue the statement was technically true. While unveiling the bill, which explicitly states that it has “adopted a model similar to Chapter 9,” he said that it wasn’t a bankruptcy law. Maybe there’s an argument to be made that it’s a legally distinct form of restructuring. But that’s a quarrel for the courts. Offering the media a piece of information that wasn’t a lie, but failed to tell a vital part of the story, could go a long way toward undermining public trust.
A few days later, Moody’s Investors Service pointed out the obvious. “The new law clearly signals the political and economic limits in its ability to fulfill [all of its debt] obligations,” the ratings agency said when cutting Puerto Rico’s general obligation bonds three more notches into junk bond territory.
Instead of admitting its mistake and committing to more transparency, Puerto Rico played the blame game. Moody’s was the enemy, besmirching the commonwealth’s good name. “That credit agency, and any other entity acting alike, will have to answer for this offense,” Garcia Padilla said, threatening to sue the ratings company. Such a case would be virtually impossible to win and the move made Puerto Rico look like it was trying to shift the public’s focus, rather than deal with the situation at hand.
Adding to the poor public perception was government officials’ failure to put up a united front. The governor and Pedro Pierluisi, Puerto Rico’s congressional representative in DC, hail from opposing political parties. And they’re not shy about airing their disagreements publicly. Pierluisi appeared blindsided by the restructuring law, and has proposed instead asking Congress to extend Chapter 9 to Puerto Rico. In a release ostensibly highlighting Pierliuisi’s meetings with ratings agencies to talk about Puerto Rico’s “great future,” Pierluisi talks about “errors that have been made by the current government” including “unwisely imposed” taxes.
And that’s the point. Selling that “great future” has become a lot tougher when the central information officials are getting to the public is that they’re bungling their message, whatever it is.
Simone Baribeau is a senior reporter covering US territories, non-profit hospitals, stadium financing, and Florida for Debtwire Municipals. She has been covering municipal finance since 2010 and can be reached at simone.baribeau@debtwire.com.
This post is brought to you by Debtwire, a Mergermarket company, the leading provider of real-time intelligence, analysis and data on distressed debt, leveraged finance and asset-backed markets. The team at Debtwire is comprised of financial journalists and credit analysts with considerable experience covering trading, law and investment banking. Our reach is global, with separate products covering North America, Europe, CEEMEA, Asia-Pacific, Latin America, ABS and Municipals. For more information regarding Debtwire visit www.debtwire.com.
By Simone Baribeau
Puerto Rico's Public Relations Headache
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