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Puerto Rico took the edge off this week’s debt default by announcing a tentative agreement with creditors of the island’s Government Development Bank, but that deal is far from a sure thing, according to a Bloomberg analysis yesterday. After Governor Alejandro García Padilla announced that the GDB wouldn’t make a $400 million principal payment due May 1, the bank said a group of hedge funds who hold $900 million of its debt conditionally agreed to defer payment and accept 47 cents on the dollar of the face value of their securities. The ad hoc group of bondholders agreed to keep discussions out of court for 30 days while they continue to negotiate. In order to finalize the accord, all GDB bondholders must agree to the restructuring terms. That may be difficult given that many individual investors hold the bonds and may not closely follow the bank’s changes, according to Phil Fischer, head of municipal research at Bank of America in New York. The GDB has about $4 billion in bonds. “It’s extremely unlikely that they will get 100 percent because the debt is held widely in individual accounts,” Fisher said. The GDB cautioned that the transaction would be “highly unlikely” to reach the required participation level without federal legislation that includes a provision to bind non-consenting creditors. Read more. 

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at ABI’s New York City Bankruptcy Conference on May 12 will examine potential remedies. Rates go up on Friday! Click here to register. 

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

Atlantic City made $1.8 million in interest payments, averting what would have been New Jersey’s first municipal default since the Great Depression as state lawmakers bicker over how to assist the troubled gambling hub, Bloomberg News reported yesterday. Mayor Don Guardian, who last week hadn’t decided whether to meet the city’s obligations on tax-exempt debt sold in 2012, said at a press conference that the payment was made yesterday. Guardian said that a default is still possible next month, predicting that the city will be out of money in June. The brush with default underscores the severity of the city’s long-building fiscal crisis and may put pressure on New Jersey lawmakers and Governor Chris Christie to come to its aid. Christie, a Republican, and the Democrat-led legislature this year have been at loggerheads over how to rescue the 39,000-resident seaside town, whose gambling industry has been battered by competition from neighboring states. The impasse showed no signs of easing as Christie told reporters in Trenton that Guardian shouldn’t get praise for a routine municipal act. Guardian supports a rescue plan for the city that’s opposed by the governor.

Officials in Washington, D.C., and San Juan have expected for some time that Puerto Rico would default yesterday on debt owed by its Government Development Bank. When it finally happened, the impact on the markets was muted, which means there may be less urgency to resolve a standoff in Congress over debt restructuring legislation, according to an analysis today on MorningConsult.com. The commonwealth made its default on the debt official over the weekend when Gov. Alejandro García Padilla declared a moratorium on the GDB debt payment and addressed the 3.5 million people of Puerto Rico on television. Importantly, the island did not default on all of the $422 million it owed to GDB creditors. An ad hoc group of creditors negotiated with the San Juan government before the default to allow some of its payment to be delayed. Under the plan, as described by the D.C.-based broker-dealer Height Securities LLC, Puerto Rico will hold off some payment to these creditors, meaning the unpaid amount comes to about $270 million in GDB debt. Read more. 

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at ABI’s New York City Bankruptcy Conference on May 12 will examine potential remedies. Rates go up on Friday! Click here to register. 

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

Gov. Alejandro García Padilla of Puerto Rico said yesterday that he had ordered a debt moratorium, blocking a $422 million payment due today, the New York Times reported. The missed payment is the biggest yet in a continuing series of defaults by the struggling United States territory, and a warning that Puerto Rico will probably default on even larger and more consequential payments due on July 1, unless Congress enacts rescue legislation before then. On that date nearly $2 billion is due, roughly $800 million of which consists of general-obligation bonds that carry an explicit guarantee by the Puerto Rican Constitution. Missing a major payment on such debt would not only set off a wave of creditor lawsuits, but it could also cast a shadow over America’s $3.7 trillion municipal bond market. Read more. 

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at ABI’s New York City Bankruptcy Conference on May 12 will examine potential remedies. Click here to register. 

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

Atlantic City council President Marty Small said the council won't consider a proposal for the mayor, council members and other city officials to take a 20 percent pay cut as state and local leaders grapple with how to save the Jersey Shore gambling resort from bankruptcy, NJ.com reported yesterday. On Tuesday, Councilman Kaleem Shabazz said that he would introduce the resolution to make that reduction to Mayor Don Guardian's $103,000 salary and the $28,000 salaries of the city's nine council members. Shabazz said that the cuts would be largely symbolic, showing local leaders can make "some sacrifices ourselves" at a time when the city is close to running out of money and fighting a possible state takeover. But Small said council members were "caught off guard" by the proposal and noted the cuts would do very little to help reduce the city's $100 million budget deficit and more than $550 million debt.

Puerto Rico plans to invoke a new law permitting the suspension of debt payments if the island fails to reach an agreement to defer $422 million in bond payments due May 1, Bloomberg News reported yesterday. The commonwealth, which is grappling with a $70 billion debt crisis, remains in talks with creditors, said Jesus Manuel Ortiz, a spokesman for Governor Alejandro Garcia Padilla. A default on the bonds issued by the Government Development Bank would be the largest yet by Puerto Rico, which has said that it has no choice but to renege on obligations because of its struggling economy and deteriorating finances. Garcia Padilla on April 6 signed the moratorium law allowing him to suspend principal and interest payments on a wide swath of debt, including the island’s general obligations. He has said that the U.S. territory can’t afford payments due in May and July. Read more. 

In related news, Pacific Investment Management Co. said that the U.S. House bill that would establish a federal oversight board for Puerto Rico and give it powers to reduce the island’s $70 billion of debt would be a “satisfactory resolution” to the commonwealth’s worsening crisis, Bloomberg News reported yesterday. Pimco, which doesn’t own any of the territory’s securities, said that the legislation wouldn’t trigger higher borrowing costs for other municipal issuers, a concern raised by some Republicans in Congress. The legislation is pending in the House Natural Resources Committee, which canceled a planned vote this month so that it could address criticism from lawmakers of both parties. The bill has also won support from Nuveen Asset Management and holders of Puerto Rico’s sales tax–backed bonds, while hedge funds that own the commonwealth’s general obligations have opposed it. Read more. 

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

House Majority Leader Kevin McCarthy (R-Calif.) said yesterday that he is "hopeful" lawmakers can move legislation on Puerto Rico out of the House before the U.S. territory must make a $1.55 billion debt payment in July, Reuters reported. But lawmakers will not be able to address the island's fiscal crisis before May 1, when Puerto Rico is due to make a smaller $422 million payment that Governor Alejandro Garcia Padilla says it cannot meet, said the California Republican, who is second only to Speaker Paul Ryan in the legislative chamber. Puerto Rico faces $70 billion in total debt, a 45 percent poverty rate and a shrinking population, all of which threaten to cause its economy to collapse. "The May date, I don't see how we can get it done," McCarthy said. Congressional efforts to craft legislation to address the crisis have hit a series of roadblocks that McCarthy said he believes lawmakers could surmount before July 1, when Puerto Rico is scheduled to make the $1.55 billion debt payment. Read more. 

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

Puerto Rico’s Senate plans to take up legislation today that would exclude bonds used to restructure public-corporation debt from the island’s moratorium law, Bloomberg News reported yesterday. The upper chamber is set to take up the measure passed by the House of Representatives last week, Senate President Eduardo Bhatia said yesterday. The Senate will change the House bill so general-obligation and sales-tax bonds would still be subject to the debt-moratorium law, Bhatia said. Governor Alejandro Garcia Padilla has said that the commonwealth needs the ability to skip payments on both classes of securities. Assets and revenue of municipalities and local cooperatives would be protected from the moratorium. A deal that would restructure about $9 billion of Puerto Rico Electric Power Authority debt would also be exempt from the moratorium law, Bhatia 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.