Crowley Continues Investment in Puerto Rico While Emerging Market Struggles

Crowley Puerto Rico Services recently announced that it is continuing to invest in Puerto Rico with the execution of an additional $21 million construction contract for improvements and upgrades at its Isla Grande port terminal in San Juan.

According to spokesmen, it is the latest in a series of investments in support of the trade that will make Crowley's terminal and shipping operations the most modern and efficient in all of Puerto Rico.

Emerging market analysts note, however, that the troubled island is also having serious solvency problems

The construction contract was awarded to Del Valle Group, S.P. of Toa Baja, Puerto Rico, and includes expanding the terminal's capacity for handling refrigerated containers; paving 15 acres to accommodate container stacking; installing a new electrical substation to provide power for three new ship-to-shore gantry cranes; constructing a new seven-lane terminal exit gate, and installing hardware required for a new, state-of-the-art terminal operating software system.

The contract is the third awarded that is associated with Crowley's investment in its Isla Grande terminal in preparation for the arrival next year of the first of Crowley's two new liquefied natural gas (LNG)-powered, Commitment Class ships now under construction in Pascagoula, Miss.

“This contract represents the last major contract to be awarded in our half-a-billion-dollar investment in our Puerto Rico Jones Act service,” said John Hourihan, Crowley senior vice president and general manager, Puerto Rico.

“With construction of both Commitment Class ships well underway, dredging at Isla Grande completed and pile driving operations associated with the pier ongoing, we are definitely beginning to see the results of our investment taking shape.”

Alec Lee, an analyst with Washingon DC-based Frontier Strategy Group, an emerging markets consultancy, is less bullish on investment prospects there.

He notes that just weeks after passing a debt moratorium law, the government of Puerto Rico defaulted on the debt of
the island's Government Development Bank. In doing so, it has essentially chosen to prioritize current spending on key social services, rather than service its interest and amortization payments that fell due on Sunday, May 1st.

“The decision follows months of negotiations in the U.S. House of Representatives where lawmakers have attempted to cobble together a deal that would facilitate the restructuring of Puerto Rico's nearly $70 billion in debt, while also providing a federal oversight board to insure the island puts its fiscal house in order,” observed Lee.

Despite significant efforts, due to disagreements around key terms of the agreement, final legislation has yet to be produced. As such, Puerto Rico has been left with little recourse but to default.

Puerto Rico now faces a new deadline of July 1st, at which point it will see approximately $2 billion of interest and amortization payments come due. Importantly, of this $2 billion, $800 million is general obligation debt.

This means that its repayment is constitutionally guaranteed, and the consequences of non-payment would be much more severe for Puerto Rico's finances, as well as the larger municipal bond market.

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