Puerto Rico’s governor asked justice officials to investigate allegations that critical power grid supplies were stockpiled instead of put to use rebuilding the U.S. territory’s infrastructure following a devastating recent hurricane, WSJ Pro Bankruptcy reported. Gov. Ricardo Rosselló said yesterday that the Puerto Rico Justice Department probe would uncover “whether there was a commission of crimes or negligent action.” The U.S. Army Corps of Engineers said this week that it had discovered supplies at a warehouse owned by the island’s bankrupt electric monopoly, known as PREPA, then distributed them to private contractors rebuilding the island’s power grid. The announcement sparked a furor on the island, where hundreds of thousands of families are still without power.
Surprise Valley Health Care District, which operates 26-bed Surprise Valley Hospital in Cedarville, Calif., filed for chapter 9 bankruptcy on Jan. 4, Becker's Hospital Review reported. In court documents, the district's board said without bankruptcy protection, the financial state of the organization "jeopardizes the health, safety, and/or well-being" of local residents. The board authorized the healthcare district to partner with Denver, Colo.-based medical testing company CadiraMD. Under the agreement, CadiraMD will lend the healthcare district up to $1.5 million, subject to the achievement of certain milestones, including the sale of Surprise Valley Hospital. In the bankruptcy petition, the district listed its assets as between $500,000 and $1 million and its liabilities as between $1 million and $10 million.
After a drumbeat of downgrades, Standard & Poor’s has increased Hartford’s bond rating, but cautioned that the city’s debt is still “vulnerable to nonpayment,” the Hartford Courant reported. The ratings agency bumped Hartford’s rating to CCC, up from CC, following the passage of a state budget that allowed the city — at least for now — to avoid filing for bankruptcy. Mayor Luke Bronin had warned in September that without a state budget, Hartford would be unable to pay its bills within 60 days. His threat of bankruptcy prompted several ratings companies to downgrade the city. Standard & Poor’s issued the rating increase last week, but noted that Hartford’s bonds are still vulnerable to nonpayment because “a default, a distressed exchange or redemption remains possible without a positive development.”
Puerto Rico’s effort to persuade bondholders to forgive a big chunk of its $74 billion of debt has been stalled by a major stumbling block: The government’s murky finances have left neither side entirely certain about how much it can afford to pay, Bloomberg News reported. The most recent annual financial statements are for 2014. Computer systems spanning dozens of departments don’t talk to each other. Independent agencies either can’t, or won’t, provide details about how they use taxpayer funds. Even the island’s fiscal recovery plan sets aside an extra $600 million a year to cover expenses that the government might not know about. At a court hearing this month, bondholders complained that Puerto Rico was withholding key information during negotiations and urged a federal judge to force the U.S. territory to turn it over. A federal judge yesterday sided with general-obligation bondholders, including Aurelius Capital Management LP and Monarch Alternative Capital LP, which have complained for months that the government and a federal oversight board have not given them enough access to basic spending information. The board and the government had argued that they don’t have some of the information being demanded and that other data was being withheld because commonwealth officials say creditors don’t have a right to it.
For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.
A U.S. bond insurer moved a step closer to executing a proposed $5 billion restructuring deal designed to solve a cash crunch that dates to the U.S. housing bust, WSJ Pro Bankruptcy reported. A Wisconsin judge has paved the way for Ambac Assurance Corp. to offer up the proposed transaction for court approval early next month, overruling a group of dissident hedge funds who wanted the proceedings delayed. Regulators seized part of Ambac’s business in 2010 to contain the damage from insurance policies on real estate securities and derivatives that had imploded along with the housing market. Now Ambac has developed a proposal to wind up its bad bank, also known as the segregated account, and end the state-supervised rehabilitation after eight years. The transaction would exchange $3.8 billion in deferred policy claims and $1.2 billion in surplus notes for a combination of cash and debt worth 93.5 cents on the dollar. But Cyrus Capital Partners LP, Polygon Global Partners LLP and Taconic Capital Advisors LP have accused Wisconsin’s Office of the Commissioner of Insurance of underestimating future losses on Puerto Rico bonds, which could undermine the economics of the deal.
For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.
Hartford, Conn.’s city council yesterday approved a proposal to seek state oversight in exchange for tens of millions of dollars in additional assistance that the city will need to balance its budget, the Hartford Courant reported. The council approved a request from Mayor Luke Bronin to apply for state monitoring. If accepted by the state, Hartford will be watched by an 11-member panel and must report its budgets, contracts and other transactions to the group. Several council members had expressed steadfast opposition to the oversight, saying that it undermined the power of local government. Last year, the group rejected a different plan that would have involved some state intervention in city financial dealings. But in recent months, as Hartford’s outlook worsened and the threat of bankruptcy grew, they have softened on the issue, pointing to oversight as the city’s last hope to avoid insolvency. The oversight board will have the power to reject — up to two times — each new labor contract and arbitration award. It also must approve any new debt issued by the city.
More than two months after Hurricane Maria devastated Puerto Rico, the island’s government still hasn’t received any of the $4.9 billion of short-term loans promised in the storm aid package Congress passed at the end of October, Bloomberg News reported. Christian Sobrino, the governor’s representative on the island’s federal oversight board, confirmed that no Puerto Rican entity has received any portion of the funds, which were requested for basic functions like making payroll. This week, the Puerto Rican government told the fiscal control board that the electric company, PREPA, and water utility, PRASA, would run out of money in December. Sobrino said that the island’s fiscal agency was in talks with the U.S. Treasury and Department of Homeland Security about the money and how it would be disbursed.
The financially struggling city of Hartford, Conn., is preparing to seek about $45 million in assistance, now that a new state oversight board is in place, the Associated Press reported. Connecticut's Municipal Accountability Review Board kicked off its first meeting on Friday. Created in the new state budget, the 11-member board was established to help financially distressed municipalities, such as Hartford, avoid insolvency and bankruptcy in exchange for greater accountability. Hartford City Treasurer Adam Cloud said that the organizational meeting set in motion Hartford's application to become a Tier III city, making it eligible for advisory assistance and state loans and grants. Under the new initiative, there are four designated tiers for municipalities, based the seriousness of their fiscal problems.
The Republican tax plan being considered in Congress would eliminate a tax exemption on some types of bonds issued by state and local governments to refinance their old debt, the Wall Street Journal reported. The GOP proposal targets the exemption for so-called advanced refunding bonds, which allow governments to refinance old bonds earlier to take advantage of low interest rates and, occasionally, to postpone upcoming debt payments. The House approved its version of the tax measure last week, and the GOP has said that it aims to get agreement on the bill by year’s end. It is one of several municipal-market exemptions that could be phased out under the legislation. The nonpartisan Joint Committee on Taxation estimates that ending advance refundings would mean an additional $17.3 billion in revenue to the federal government over the next decade.
State and local governments pledge their full faith and credit to repay general obligation bonds, but politicians in Chicago and Connecticut realize their word is depreciating in value. Thus, they’re pitching a debt arbitrage to reduce their borrowing costs, according to a Wall Street Journal editorial. As part of Illinois’s bailout of Chicago, Democrats in Springfield this summer allowed the city to issue bonds securitized with $700 million or so in annual sales tax revenue, according to the editorial. Chicago plans to start floating the sales-tax bonds next month to refinance existing debt, and the bonds will be cheaper to finance than Chicago’s junk-rated GO bonds, which carry a 3.5 percent premium over top-rated municipal securities. Connecticut lawmakers recently authorized bonds backed by state income taxes as a substitute for GOs. The budget noted that “the new type of borrowing authorized in the bill may be viewed more favorably in bond markets because it is linked directly to a large and relatively stable revenue source,” according to the editorial. Puerto Rico likewise established a special public corporation in 2006 to issue sales-tax “Cofina” bonds, which were billed as more secure than debt paid from the commonwealth’s operating fund. For a time that appeared true, as politicians raised the sales tax (which was later converted into a VAT) to repay creditors. But last year, Puerto Rico’s governor issued a debt moratorium, which led Congress to impose a fiscal control board and create a quasi-chapter 9 bankruptcy process. Cofina and GO bondholders are now vying for the same small pool of money, and both will be lucky to get half of what Detroit bondholders recovered in its chapter 9.
