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Puerto Rico’s Government Development Bank, which served as the island’s financial adviser and lender before being placed in a state of emergency, failed to pay investors $9.9 million of interest due Sept. 1., according to a regulatory filing, Bloomberg News reported yesterday. The bank, whose regulator says is insolvent and faced a cash shortfall of as much as $1.3 billion in June, has been defaulting on debt payments since May. September’s missed payment was disclosed in a filing yesterday on the Municipal Securities Rulemaking Board’s website. President Barack Obama last week selected seven people from lists provided by congressional leaders from both parties to serve on a federal control board that will oversee any restructuring of Puerto Rico’s $70 billion of outstanding debt and monitor the island’s budgets. Puerto Rico defaulted on nearly $1 billion on July 1, including $780 million on general-obligation bonds, the largest such payment failure in the $3.7 trillion municipal-bond market. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

The federal appointees tapped to help map Puerto Rico's economic future are technocrats more than political actors, and that could make the U.S. territory's fiscal turnaround look more like a corporate restructuring than a politically charged municipal bankruptcy in the vein of Detroit, according to a Reuters analysis yesterday. The law known as PROMESA, which created the board when it passed the U.S. Congress in June with bipartisan support, envisioned a pragmatic solution for an island combating $70 billion in debt, 45 percent poverty and a brain drain as residents bolt in droves for the mainland United States. Its members, four Republicans and three Democrats appointed last week, were chosen by Republican and Democratic lawmakers and President Barack Obama. The board has broad powers to help stabilize the island's economy, from investigating Puerto Rico's government to working with that government on projects to spur economic growth. The island has 18 separate debt issuers, backed by different revenue streams, as well as $18 billion in so-called general obligation debt backed by the "full faith and credit" of the territory's government. Holders of all that debt will jockey for payouts against government vendors and beneficiaries of the island's public pensions, which have less than $2 billion in assets to cover some $45 billion in liabilities. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

With a $5.3 million budget deficit looming for 2017, Kane County, Ill., officials are on the verge of making a pension move some government finance experts believe has more risk than value, the Chicago Daily Herald reported yesterday. The plan involves issuing $52 million in pension obligation bonds. The proceeds from the bonds would pay off the county's current unfunded IMRF pension obligation. The county pays about 7 percent interest to IMRF on the unpaid balance. The county finance committee unanimously approved the plan on Wednesday. It will go to executive committee, then the full county board for a final vote. Based on the advice of Robert W. Baird, the firm that would issue the bonds for the county, officials say they believe the bond loan would carry a 3.5 percent interest rate. The savings from the lower interest rate would free up about $15 million for the county during the next 28 years.

A year after being cut to junk by all three major bond-rating companies, Chicago’s school system has won an influx of state aid, secured extra tax money for its pensions and quieted speculation that the crisis is so severe that bankruptcy is inevitable, Bloomberg News reported on Friday. But as the Chicago Board of Education seeks permission to borrow as much $945 million, the nation’s third-largest district is far from in the clear. This year’s budget will only balance if teachers agree to pay more into their retirement plan and the gridlocked Illinois legislature passes an overhaul of the state pension system. School officials are still trying to secure needed credit lines to help pay bills and borrowing costs have ballooned after repeated downgrades, adding to the financial squeeze. The system with almost 400,000 students is struggling to address one of the biggest crises in the $3.7 trillion municipal market, one that’s been decades in the making. For years, officials borrowed to pay bills, skipped pension payments and drew down savings, leaving the schools with nearly $10 billion of unfunded retirement liabilities and $7.6 billion of debt. The interest and principal alone will consume more than 10 percent of the budget.

U.S. Treasury officials didn’t tell Puerto Rico to default on general-obligation bond payments, according to a lawyer representing the island in its $70 billion debt restructuring, Bloomberg News reported yesterday. “At least in my experience, U.S. Treasury doesn’t say to the commonwealth ‘do x or y,’ " Richard Cooper, a partner at Cleary Gottlieb Steen & Hamilton LLP, said on Tuesday during a Puerto Rico conference at the CUNY Graduate School of Journalism in New York. Puerto Rico skipped paying nearly $1 billion to bondholders on July 1, including $780 million of principal and interest on general obligations. It was the largest default in the $3.7 trillion municipal-bond market and the first time a state-level borrower failed to pay on its direct debt since the 1930s. Cleary Gottlieb is Puerto Rico’s legal adviser as it seeks to reduce a $70 billion debt load. The firm has been in discussions with U.S. Treasury staff, commonwealth officials and creditors as the parties negotiate on a how to restructure the island’s debt. “Anyone who is seriously looking at this situation could tell you there wasn’t enough funds on July 1 to make those payments,” Cooper said. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

Chicago school officials presented a budget that relies on the state of Illinois passing an overhaul of its underfunded pension system and assumes that the teachers’ union will agree to pay more into their retirement funds, Bloomberg News reported yesterday. The $5.4 billion operating budget for the fiscal year that began July 1 is more than $230 million smaller than last year’s spending plan, district officials said. The plan relies on the state providing the district with an additional $215 million for its pension bills, which lawmakers and Governor Bruce Rauner (R) have agreed to pay only if the state comes up with a plan to restructure its own retirement system. The six-month spending plan approved at the end of June allows Chicago to establish a property tax levy up to $250 million specifically to help cover the teachers’ pension fund. The retirement system was only 52 percent funded as of June 30, 2015. The school system also secured $131 million of additional state funding from a so-called equity grant to bolster districts with high concentrations of students in poverty.

Chicago will pay at least $902 million in 2017 to its four retirement funds that are only 23 percent funded, Bloomberg News reported yesterday. The shortfall across the four funds ballooned to $33.8 billion from $20 billion a year earlier, mostly due to new accounting rules. Chicago hasn't paid enough into its retirement funds for years, leaving the city of 2.7 million strapped with hundreds of millions of dollars of obligations and the lowest credit rating of any big U.S. city except Detroit. Officials have been spending more than they're bringing in, and borrowing to push off debt payments, a practice Mayor Rahm Emanuel has promised to end by 2019. Long-term debt-service payments in 2017 are currently projected at about $2 billion.

While hedge funds hold much of Puerto Rico’s troubled debt, individual investors own an estimated $15 billion in bonds — 22 percent of the island’s overall $68 billion public debt, the Associated Press reported yesterday. Many eagerly bought Puerto Rico bonds because they are exempt from state, local and federal taxes and were widely considered safe. Prices for Puerto Rican bonds have plummeted, devastating many investors in Puerto Rico and on the mainland. Some have had to delay retirement, find alternative sources for their children’s college funds or rejoin the workforce. Many hold out hope that a new federal aid package signed by President Barack Obama in June will at least limit their losses. The measure creates a federal control board to oversee Puerto Rico’s finances, supervise some debt restructuring and negotiate with creditors. Puerto Rico bonds rallied by some 20 percent that day and remained at that level even after the governor announced a moratorium on general obligation debt, said Puerto Rico financial adviser Jose Ivan Acosta. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

The chapter 9 case of San Bernardino, Calif., begins its fifth year today, and city officials say that it’s probably the final one, the San Bernardino Sun reported. San Bernardino filed for bankruptcy protection Aug. 1, 2012, swamped by a deficit of more than $45 million — equivalent to 40 percent of the $112 million in revenues the city expects this year — and fearing it wouldn’t be able to make payroll unless a bankruptcy judge stopped creditors from collecting their debts. That protection isn’t cheap: From 2012 until May 2016, the city spent $18.8 million on bankruptcy-related expenses — attorneys and consultants — according to one of those consultants, Teri Cable of Management Partners. Bankruptcy Judge Meredith Jury has scheduled a confirmation hearing for Oct. 14.