The International Swaps and Derivatives Association yesterday said that it has determined that a failure to pay credit event occurred in respect to Puerto Rico missing bond payments of more than $900 million earlier this month, Reuters reported. ISDA said that the judgment was made by its Americas Credit Derivatives Determinations Committee and that it will publish additional information on the Puerto Rico credit event, including whether a credit default swaps auction will be held, "in due course." Read more.
Sens. Orrin Hatch (Utah) and Marco Rubio (Fla.) will be Senate Republicans’ representatives on a bicameral task force charged with coming up with methods to help Puerto Rico emerge from its debt crisis, MorningConsult.com reported on Frday. Rep. Nydia Velázquez (D-N.Y.) and Puerto Rico’s non-voting representative in Congress, Pedro Pierluisi, will represent House Democrats. Senate Majority Leader Mitch McConnell (R-Ky.) on Friday appointed the two senators to the task force, which is separate from the fiscal oversight board established by the recently passed law to address the island’s debt crisis. Senate Minority Leader Harry Reid announced last week his appointment of Sens. Bill Nelson (Fla.) and Robert Menendez (N.J.) to the task force. President Obama on June 30 signed into law the Puerto Rico Oversight, Management and Economic Stability Act, also known as PROMESA. The congressional task force it established is required to complete a report on the causes and possible solutions to the crisis by the end of 2017. House Speaker Paul Ryan on Friday appointed Rep. Sean Duffy (R-Wis.), the bill’s lead sponsor, and Rep. Tom MacArthur (R-N.J.). Read more.
Puerto Rico hired Public Financial Management Inc. to serve as the commonwealth’s adviser on capital financing transactions, Bloomberg News reported yesterday. Terms of the agreement weren’t disclosed, but the Puerto Rico Fiscal Agency and Financial Advisory Authority said that the Philadelphia-based firm will assist the island and its various utilities and agencies on pricing and execution of borrowings through June 2017. The authority serves as the commonwealth’s fiscal agent after Governor Alejandro García Padilla in April placed the Government Development Bank in an emergency period as the bank’s liquidity diminished. PFM served as a financial adviser to the GDB from July 2014 through June 30, 2016, according to Puerto Rico’s Office of the Comptroller. Two contracts for that period total $1.3 million, according to the documents. Read more.
Puerto Rico Governor Alejandro García Padilla suggested yesterday that the commonwealth’s central government may not be able to borrow from the $3.7 trillion municipal bond market any time soon, as the uncertainty of restructuring the island’s $70 billion debt and its continuing recession weigh on its shrinking population, MarketWatch.com reported. “I think it would take a couple of years, maybe two years for the bond market to open to Puerto Rico if we do the right thing,” García Padilla said yesterday. The governor, not running for re-election in November, said that for Puerto Rico’s economy to grow, the White House needs to give Puerto Ricans a larger share of benefits from Medicare and Medicaid. He also said that Congress needs to grant new corporate incentives to the island similar to the now expired Section 936 of the tax code, which exempted U.S. companies from paying federal tax with revenue originated from U.S. territories, including Puerto Rico. President Barack Obama signed a bill on June 30 to create a seven-member federal board to oversee the commonwealth’s finances, restructure its $70 billion debt, and shield the island from creditor lawsuits. Puerto Rico defaulted on July 1 on about half of the $2 billion bond payments due. Puerto Rico cannot file for bankruptcy protection under current law. Read more.
Bonds that financed the lease of the parking system for Harrisburg, which helped solve the fiscal crisis in the Pennsylvania capital, were cut to junk by S&P Global Ratings because of lower than expected revenue, Bloomberg News reported on Friday. The ratings company last Thursday lowered the grade on the Pennsylvania Economic Development Financing Authority’s parking bonds two steps to BB+, the first level into speculative grade. Although the system hasn’t yet drawn on reserves, it has failed to make the required amount of revenue in excess of debt payments the past two years and will likely do so again this year, S&P said. The parking operations also provided Harrisburg less than half of its $2.5 million annual payment for fiscal 2015.
The Puerto Rico Aqueduct & Sewer Authority wants to issue the debt through a new agency to finance construction work delayed by the government’s fiscal crisis, Bloomberg News reported yesterday. Though the commonwealth just defaulted on about $1 billion due to bondholders, the agency would give investors first claim on revenue it collects from water and sewer bills, according to Efrain Acosta, the director of finance for the utility. It may also exchange an additional $1.1 billion of securities for its outstanding bonds to investors willing to accept less than they’re owed. “The market is tough at this moment,” Acosta said in an interview. “But we have to go forward with our plan and see if we can get new money to pay our contractors and try to restart our construction plan.” Puerto Rico faces considerable obstacles, even in a market where rock-bottom yields have left buyers willing to take on more risk for bigger returns. The U.S. territory hasn’t sold bonds since it borrowed $3.5 billion in March 2014, a deal that was supposed to give it time to arrest the financial decline, and a planned $750 million offering by the water utility last year was subsequently shelved. Moreover, it’s unclear how a federal oversight board, which hasn’t been appointed yet, will treat bondholders as the island seeks to cut its debt. Read more.
U.S. District Court Judge Francisco Besosa declined Friday notices of automatic stay filed by Puerto Rico to freeze lawsuits filed by a bondholders group and three firms to invalidate the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act, Caribbean Business reported on Saturday. The commonwealth filed the stay notices for lawsuits filed by National Public Finance Guarantee Corp., Ambac Assurance Corp., Brigade Leveraged Capital Structures and Trigo v. García Padilla against various agencies. The notices were also filed Friday. Judge Besosa ordered the plaintiffs to respond to the notice no later than July 18. “At this time, without the benefit of full briefing by the parties, the Court will not acknowledge that this litigation has been temporarily stayed by the [Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)],” the judge said in the responses. On June 30, President Obama enacted PROMESA, which puts a temporary moratorium on debt-related litigation against the commonwealth until at least Feb. 15. The plaintiffs are seeking payment alleging that the Moratorium Act violated contractual obligations and is the equivalent of a local bankruptcy law, which is prohibited. Read more.
Puerto Rico on Friday defaulted on $779 million in general obligation bonds, and while the default is no surprise given the island’s financial woes, it’s still bad news, and has led to a downgrade from Fitch Ratings, Barron’s reported today. The credit rating agency cut Puerto Rico’s Long-Term Issuer Default Rating (IDR) to “RD” from “C” and general obligation (GO) bond rating to “D” from “C” after the default on Friday. Fitch had put Puerto Rico on ratings watch in anticipation of a downgrade in case of default, and after today’s action it’s been removed. Read more.
A year after almost lapsing into insolvency, Detroit’s home county is showing signs of a turnaround, Bloomberg News reported today. Wayne County has cut retiree health care bills, reduced pension benefits and lowered labor costs, turning once chronic deficits into surpluses. The improvements have caught the eye of rating companies, with Fitch Ratings last month raising it four levels to BB+ — one step below investment grade — and Moody’s Investors Service and S&P Global Ratings improving their outlooks. The nascent financial recovery shows the county of about 1.8 million residents is finding a way to adjust to the population declines and debt that pushed Detroit, its largest city, into bankruptcy three years ago. When the fiscal year ends in September, the government expects to have $67.6 million on hand, compared with a deficit of $146 million in 2013.
