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Three major bond insurers are bracing for the possibility of a historic payout if Puerto Rico defaults on debt due today, the Wall Street Journal reported. Puerto Rico Gov. Alejandro García Padilla yesterday reiterated statements that the commonwealth cannot afford to make the payment and cited an April law that allows Puerto Rico to temporarily stop paying bond debt. García Padilla has long said that the island would not be able cover the July 1 payment of nearly $2 billion. That could trigger as much as hundreds of millions in payments from insurers Ambac Financial Group, National Public Finance Guarantee Corp. and Assured Guaranty Ltd. to cover principal and interest, in what would be the biggest insurer payout to date in Puerto Rico. It isn’t yet known how likely this worst-case scenario is since it is unclear just how much the insurers will have to pay. In some cases, the reserve funds set aside by Puerto Rico could cover payments. Analysts said the ultimate impact will be limited because all three insurers have money set aside for such claims and their share prices have already suffered because of Puerto Rico’s troubles. Insurers also agree to pay only the amount due on the day it is due, not to accelerate payment on the defaulted bonds. Read more. (Subscription required.) 

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

Chicago Public Schools has to pay $669 million to the teachers' pension fund by today, and after that it's not clear how much the district will have left in its budget for day-to-day expenses, the Chicago Tribune reported. CPS has warned investors and aldermen since the beginning of the year that the pension payment will leave the district with a barrel-scraping $24 million — enough cash to cover less than two days of business. But CPS said on Tuesday that its short-term cash picture "modestly improved" after a series of cost-cutting measures in the last school year that included unpaid furlough days and sharp reductions in per-pupil spending. The district, which has threatened drastic cuts in the coming school year without state intervention, said that it would issue a preliminary update to its cash position after making the pension payment today. With its fiscal year ending on the same day the pension payment is due and without a proposed budget for the coming year, CPS will have to get through July with the borrowed money it has on hand until it receives roughly $1.1 billion in property tax revenue due by August.

Atlantic City, New Jersey's fiscally distressed gambling hub, has hired public finance attorneys to restructure some of its $240 million of outstanding bond debt, Mayor Don Guardian said on Tuesday, Reuters reported yesterday. New Jersey law firm McManimon, Scotland & Baumann will work on reducing the city's debt load, much of which it took on to pay back casinos that won property tax appeals. City officials are meeting with the firm this week, Guardian told residents in a meeting on Tuesday. The city's fortunes have faded as gambling competition in neighboring states cut into its casino industry and eviscerated its property tax base. Under new state legislation passed in May, Atlantic City has until October to craft a recovery plan or face a possible state takeover.

Having already defaulted multiple times over the past several months, the Puerto Rico faces more debt per capita than any U.S. state, according to a commentary on Realclearpolitics.com. While the average debt to GDP ratio of the fifty states is 7.2 percent, Puerto Rico’s is approximately 70 percent as the territory grapples with a 45 percent poverty rate and an economy that has shrunk by 10 percent over the past decade. Some have fomented a simplistic narrative that pits Puerto Rico’s government versus “greedy” hedge funds. But this neglects not only the direct impact on the 9 million Americans who have a portion of their retirement savings invested in the island’s bonds, but also the detrimental impact on Puerto Rico’s economic future — and broader consequences for borrowing costs across the country, according to the commentary.

Just two days before Puerto Rico plans to default on a large debt payment, the Senate yesterday passed and sent to the White House a relief measure to help the financially desperate island surmount its fiscal crisis, the New York Times reported today. The Senate, eager to follow the House out of town for a long Fourth of July weekend, voted 68 to 30 for the legislation on Wednesday evening after a test vote that morning showed by a wide margin that critics in both parties did not have the numbers to block passage. President Obama will sign the measure, which his Treasury secretary, Jacob J. Lew, had negotiated and lobbied for since December. The rescue package will not prevent Puerto Rico from missing the payment due on Friday on a $2 billion debt, and Republican congressional leaders labored to the end to reassure conservatives that the bill is not a bailout. Instead, the legislation would allow the island’s government to restructure its $72 billion total debt so it can manage payments, and create a bipartisan oversight board mostly of outsiders to guide what is sure to be a painful recovery process. Crucially, given the imminent missed debt payment, the bill also would bar lawsuits by creditors for nonpayment retroactive to December — to provide Puerto Rico “the breathing room,” as Lew put it, for its government and the control board to restructure the crippling debt and devise a new budget plan. Read more. 

In related news, Puerto Rico has suffered a population slide that is steeper and more financially disastrous than in any U.S. state since the end of World War II, according to a Wall Street Journal analysis. An exodus of workers, retirees and entire families has shrunk Puerto Rico’s population by more than 9 percent in the past decade to less than 3.5 million, magnifying the territory’s inability to repay its $70 billion in debt. A decade-long recession has left one in nine residents out of work and roughly half dependent on the cash-strapped government for health care. Net migration to the U.S., where Puerto Ricans can move with no restrictions, was 250,000 so far this decade. The island’s labor force shrank 20 percent in the past 10 years, compared with 5 percent growth in the U.S. Read more. (Subscription required.) 

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

The Senate today is scheduled to vote on a bill already approved by the House that would restructure Puerto Rico’s debts and could create the conditions for recovery, according to a New York Times editorial. If the bill loses, Puerto Rico will default on Friday on a $2 billion debt payment, creditors will keep suing for full repayment and essential services on the island, including health, sanitation, education, electricity, public transportation and public safety, will continue to decline. Senators in both parties have objected to the yes-or-no nature of the vote, saying they want to amend the bill. But amendments would likely kill the bill, in part because it passed the House only after negotiations and compromise among both parties and the White House. Even if the House were inclined to pass an amended bill, it could not do so before the July 1 default date because it is not in session. Read more. 

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

After months of waiting for the U.S. Congress to act as Puerto Rico's economic crisis progressively worsened, the Caribbean island is on the verge of securing a relief plan from Washington, D.C., aimed at helping it address a hobbling $70 billion debt, Reuters reported yesterday. The Senate is set to launch a debate on Wednesday for legislation establishing a federal oversight board that would be in charge of restructuring the U.S. territory's debt where one out of every three dollars it earns in revenue is used to pay creditors, according to the U.S. Treasury. The measure is identical to the plan passed by the House of Representatives earlier this month, as Congress tries to send it to President Barack Obama to sign into law by July 1. That is when Puerto Rico faces a potential default on a chunk of its debt if it cannot make a $1.9 billion payment. As early as Wednesday, the Senate could cast a procedural vote on the bill that, if successful, would clear the measure for passage this week. Senate Majority Leader Mitch McConnell also took steps to limit amendments that can be offered to the bill. Read more. 

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

U.S. Treasury Secretary Jack Lew today called on the Senate to take immediate action this week to address Puerto Rico's debt crisis before the critical July 1 deadline for the island territory's next debt payments, Reuters reported. "The Senate should take up the matter immediately," Lew said in a letter to Senate Majority Leader Mitch McConnell. "Delay will only jeopardize the ability of Congress to conclude its work before July 1, a critical deadline Puerto Rico's leadership has publicly highlighted for months." Read more.

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