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IEEFA Puerto Rico: Governor looks to Wall Street cash to fund re-election bid

May 28, 2019
Tom Sanzillo and Cathy Kunkel

Puerto Rico mapCampaign contributions from law firms to elected officials who issue bonds and appoint lawyers and underwriters—often known as a “pay to play” system — are poison. (Perhaps the best work on this subject is a seminal speech by Arthur Levitt, former chair of the Securities and Exchange Commission, in 1997).

A campaign fundraiser for Puerto Rican Governor Ricardo Rosselló, organized by bankruptcy lawyers and held May 14 in New York City, raises alarms that the island’s fiscal health once again risks being sacrificed for political ambition. Puerto Rico’s government and authorities have long been criticized for paying huge fees to consultants and firms that produce unsound financial advice.  This fundraiser, coming immediately after the announcement of a major Puerto Rico debt deal, shows the governor continuing down that path, regardless of the cost to the commonwealth’s economy and people.

The most recent deal, settling $8 billion in notes for the Puerto Rico Electric Power Authority (PREPA), is one of the largest municipal bond deals in the history of the U.S., and is pending before the federal bankruptcy court.

A recent report in El Nuevo Día mentioned the fundraising event, hosted by two lawyers with Lowenstein Sandler LLP, a prominent New York area law firm specializing in bankruptcy, and a political consultant.   One of the attorneys was previously employed at  O’Neill & Borges, where he worked on PREPA’s bankruptcy.   Lowenstein Sandler does not appear to have a contract with PREPA or any commonwealth agency. But perhaps they recognize what IEEFA has already underscored: that the current proposed debt deal is likely to result in more bankruptcies and a continued need for outside, expensive law firms and professional service contractors.


Here are some examples of contributions to Governor Rosselló’s 2016 campaign, as reported to the Puerto Rico Office of the Electoral Comptroller:

  • Individuals working for O’Neill & Borges provided at least $15,889 in contributions to the governor’s campaign and the firm now guides PREPA’s bankruptcy litigation for the Financial Oversight and Management Board (FOMB).
  • Individuals working for Nixon Peabody gave at least $13,980 to the governor’s campaign and the firm performs services for a variety of Commonwealth agencies, including PREPA, the Treasury, the Government Development Bank (GDB) and the newly minted Fiscal Agency and Financial Advisory Authority (FAFAA).
  • A PAC created by the law firm DLA Piper gave $10,400 and acts as legal advisor to the Puerto Rico Public-Private Partnership Authority, the agency working on the privatization of PREPA.


The Puerto Rico Energy Commission faulted PREPA in 2016 for awarding financial services contracts without competitive bidding and for excessive fees. (To be clear, the firms above were not listed in the commission’s ruling).  Attempts by the commission to further investigate the matter failed.

Law firms seeking business for bond counsel from bond issuers should compete only on the basis of price and talent.  When campaign contributions are made to a governor with the power to direct a contract to friendly law firms,  price competitiveness and company qualifications are irrelevant. The integrity of the contract process is undermined.

The campaign contributions also tend to get folded into inflated fees and ultimately into higher borrowings for the commonwealth and higher taxes and electricity rates for island residents. For the governor to solicit donations from bankruptcy firms, particularly given Puerto Rico’s current fragility and history of political interference, is truly incomprehensible.

The deal is overly generous to creditors and unsustainable for Puerto Rico’s economy.

The legal advice is tainted. Are the legal advisors providing their professional imprimatur on a transaction to further the political aims of the governor or because it serves the public interest? When campaign money is involved, the public has no way of answering this question. And, in this instance, the PREPA deal does not serve the public interest. The deal is overly generous to creditors and is unsustainable for Puerto Rico’s economy. It will crowd out financing for renewable energy and shortchange PREPA’s workforce by sacrificing jobs and pensions in the name of “cost-cutting.”

The twisted bond deal is now moving like a juggernaut through the courts, Puerto Rico’s legislature and eventually to the markets. The closing deadline on PREPA’s deal in June 2020 also fits neatly into the political timeline of the governor’s re-election in November 2020.

IF THIS DEAL IS APPROVED, IT IS ONLY A MATTER OF TIME BEFORE IT LEADS TO ANOTHER FINANCIAL FAILURE and the New York City bankruptcy bar can come in and do its business again.

Is the influence-peddling system at play legal? Maybe. Is it moral? No. Is it in the best interest of Puerto Rico? Certainly not.

At a Congressional hearing in April José Ortiz, the executive director of PREPA,  was asked if he knew of any corruption at PREPA or if he was doing anything about it. His response: “I have not been addressed about any specific corruption in PREPA, particularly.”

The chief executive officer and chief financial officers of Mr. Ortiz’s former employer, CSA Architects & Engineers, made $7,900 in contributions to the governor in 2016. Mr. Ortiz was appointed executive director in 2018.


Cathy Kunkel ([email protected]) is an IEEFA energy analyst.

Tom Sanzillo ([email protected]) is IEEFA’s director of finance.


IEEFA update: Under PREPA’s new debt deal, electricity prices will rise 13% by next summer in Puerto Rico

IEEFA Puerto Rico: PREPA bond deal is not a solution

IEEFA Puerto Rico: PREPA privatization will not create competitive market, will lead to more dysfunction

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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Cathy Kunkel

Cathy Kunkel is the Energy Program Manager at CAMBIO PR, a non-profit organization based in Puerto Rico that designs, promotes and implements sustainable policies and practices. 

Cathy also served as an IEEFA Energy Finance Analyst for 7 years, researching Appalachian natural gas pipelines and drilling; electric utility mergers, rates and resource planning; energy efficiency; and Puerto Rico’s electrical system. She has degrees in physics from Princeton and Cambridge.

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