Financial Oversight and Management Board
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| Financial Oversight and Management Board | |
|---|---|
| Name | Financial Oversight and Management Board |
| Formation | 2016 |
| Headquarters | San Juan, Puerto Rico |
| Leader title | Chair |
| Parent organization | United States Congress |
Financial Oversight and Management Board is a federally appointed fiscal control entity established under United States law to supervise fiscal plans and restructuring processes for a territorial government in fiscal distress, interacting with municipal, judicial, and legislative actors. Its creation intersected with major legislative, judicial, and financial events involving Congressional leaders, federal agencies, and municipal bond markets tied to Puerto Rico, engaging with courts, creditors, and international creditors. The board's work has affected interactions among the White House, the Supreme Court, and territorial administrations, drawing attention from law firms, rating agencies, and economic scholars.
Overview
The entity was created amid debates in the United States involving legislators from the House of Representatives, the Senate, and the Executive Branch, following fiscal crises that implicated municipal securities issued by Puerto Rico and controversy similar to earlier interventions in Detroit, Greece and discussions around bankruptcy law. Its mandate required coordination with the United States District Court for the District of Puerto Rico, bondholders including holders of General Obligation bonds and PREPA creditors, and advisors such as investment banks and legal teams that had advised entities like Lehman Brothers and Goldman Sachs. The formation was framed by members of Congress including figures associated with major committees like the House Committee on Natural Resources and the Senate Committee on Finance.
Legal Authority and Structure
The board's authority derived from a federal statute enacted by the United States Congress and signed by the President, modeled in part on precedents involving receiverships and oversight boards like the D.C. Control Board and mechanisms used in Greek sovereign debt talks. Its legal structure required interaction with appellate venues including the United States Court of Appeals for the First Circuit and potential review by the Supreme Court of the United States. The statute delineated relationships with territorial branches such as the Governor of Puerto Rico, the Puerto Rico Legislature, and instrumental entities like the Puerto Rico Electric Power Authority and the Puerto Rico Aqueducts and Sewers Authority. Financial instruments implicated included Municipal bond, Revenue bond, and restructuring tools used in cases involving COFINA and other territorial corporations.
Powers and Responsibilities
Powers granted by statute included approving fiscal plans, certifying budgets, negotiating with creditor committees including institutional holders such as PBGC counterparties, and initiating restructuring processes comparable to judicially overseen reorganizations like those seen in Chapter 11. The board possessed authority to stay certain creditor actions, interface with major rating agencies such as Moody's Investors Service, Standard & Poor's, and Fitch Ratings, and work with advisors previously engaged by entities like Citigroup, Banco Santander, and international law firms including Skadden, Arps, Slate, Meagher & Flom and Proskauer Rose. Responsibilities extended to ensuring compliance with federally mandated fiscal goals and coordinating disaster recovery funding from agencies such as the Federal Emergency Management Agency following events comparable to Hurricane Maria.
Governance and Membership
Membership comprised individuals appointed under the enabling statute, drawn from backgrounds that often included former officials from entities like the Department of the Treasury, private sector executives from firms such as BlackRock and JPMorgan Chase, and legal professionals with experience in cases before the First Circuit Court of Appeals and the Supreme Court of the United States. Chairs and executive directors have interacted with territorial executives including the Governor of Puerto Rico and legislative leaders, and have engaged with creditor committees represented by law firms like Paul, Weiss, Rifkind, Wharton & Garrison and Milbank. Governance rules referenced corporate practices used by boards of large firms such as General Motors and oversight frameworks similar to those applied during the restructuring of municipal utilities in Detroit.
Major Actions and Impact
Major actions included certifying multi-year fiscal plans, negotiating restructuring terms for bondholders that held General Obligation bonds and Revenue bonds, overseeing sales or operational reforms for entities like the PREPA, and coordinating with federal agencies during disaster recovery efforts attributed to storms akin to Hurricane Maria. Outcomes affected market participants including sovereign investors, hedge funds, mutual funds like those managed by Vanguard and Fidelity Investments, and multinational banks such as Deutsche Bank and Banco Santander. The board's interventions influenced litigation in venues such as the United States District Court for the District of Puerto Rico and appellate review in the First Circuit and Supreme Court of the United States, shaping precedent on territorial sovereign immunity and creditor rights.
Criticisms and Controversies
Criticism has come from territorial elected officials, advocacy groups, and academic commentators drawing parallels to interventions in Argentina and debates over austerity measures seen in Greece, alleging democratic deficits, contested interpretations of statutes, and conflicts with rights asserted under the Puerto Rico Constitution and statutes like the Bankruptcy Code. Legal challenges advanced by municipal bondholders, pensioner groups, and local officials involved law firms such as Gibson, Dunn & Crutcher and litigation that reached federal appellate courts. Debates also engaged scholars from institutions like Harvard University, Yale University, and University of Puerto Rico who questioned impacts on public services, pensions, and labor relations influenced by reforms in other high-profile restructurings such as Detroit bankruptcy.