June 19 Some Puerto Rico government workers are
threatening to walk off their jobs over a newly enacted budget
law, adding to a recent financial whirlwind that is sending
yields on the territory's junk bonds to record highs.
The Workers Federation Center, which represents 35 unions,
said it selected a date for a strike but would not reveal it in
order to surprise the government. It is not clear if the unions
will walk off their jobs indefinitely or hold a series of
The two main unions representing workers at the Puerto Rico
Electric Power Authority (PREPA) and the Puerto Rico Aqueduct &
Sewer Authority (PRASA) held strike votes on Tuesday, and then
staged a protest at Plaza Las Americas, San Juan's major
Meanwhile, the 125 union employees of the Government
Development Bank walked off their jobs last Friday and continued
to strike on Thursday, GDB spokeswoman Betsy Nazario said.
Governor Alejandro García Padilla signed the law Tuesday to
declare a fiscal emergency and attempt to address the
territory's credit rating downgrades with a plan that includes
finding savings in the public workforce. All three Wall Street
rating agencies cut the territory's credit score to junk after
the territory suffered years of economic and population
"This government wants to take away rights we have acquired
through 72 years of struggle," said Angel Figueroa Jaramillo,
the president of the Irrigation and Electrical Workers Union
(known as UTIER), the main union at PREPA.
He called on residents to stop paying water and electrical
bills to show support. Jaramillo said the law would reduce
economic benefits by 35 percent, while eliminating seniority and
subcontracting clauses in negotiated contracts.
The new law is a positive for bondholders, said Robert
Donahue, a managing director at Municipal Market Advisors.
"What is negative is the ongoing threat of strikes and the
potential of unrest in Puerto Rico," he said on Wednesday.
Yields on the territory's $3.5 billion junk bonds issued in
March have been setting record highs over the last week, as the
law wound through Puerto Rico's legislature. Yields move
inversely to price.
On Thursday morning they peaked at 9.651 percent, while the
price on the debt fell to a record low of 85.25 cents on the
dollar. In comparison, yields on top-rated
30-year municipal bonds were 3.38 percent on Municipal Market
Data's benchmark scale.
The law is not bondholders' only concern.
Last week, Puerto Rico's government suggested restructuring
a $90 million payment to its public pension in order to help
close a $320 million budget gap.
On Wednesday, Standard & Poor's Ratings Services downgraded
PREPA revenue bonds to BBB- from BBB and placed the rating on
CreditWatch with negative implications.
Meanwhile, Doral Financial Corp has sued the territory for a
roughly $230 million tax refund.
(Reporting by Robin Respaut in New York, Lisa Lambert in
Washington and Reuters in San Juan; Editing by Lisa Shumaker)