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Chicago’s public schools delayed an $875 million bond sale after a clash between the state’s top Republicans and the city’s Democratic mayor escalated, adding to the pressure on the nation’s third-largest district as it struggles to avert insolvency, Bloomberg News reported yesterday. The Chicago Board of Education postponed the deal yesterday after offering yields of as much as 7.75 percent, about 5 percentage points more than top-rated tax-exempt bonds. The planned debt issuance came a week after Republican Governor Bruce Rauner called for the state to take over the district and potentially authorize bankruptcy. That idea was immediately rejected by Democrats in control of the legislature and Chicago Mayor Rahm Emanuel, who have unsuccessfully pushed for an influx of state aid. The offering, one of the lowest-rated municipal sales in recent history, would have refinanced debt and allowed the district to put off interest payments. The strain has been building on the school system, with Moody’s Investors Service, Standard & Poor’s and Fitch Ratings cutting their grades on its $6 billion of debt deeper into junk, the teachers union threatening to strike and a deficit that’s projected to reach $1 billion a year through 2020.

A deal to restructure Puerto Rico's debt-laden power utility, PREPA, received new life late on Wednesday after the agency and bondholders agreed to extend a crucial deadline, Reuters reported yesterday. Righting PREPA's ship is seen as a key step in fixing Puerto Rico, which faces $70 billion of debt, a 45 percent poverty rate and a shrinking tax base as residents increasingly jump ship for the mainland United States. PREPA, with more than $8 billion in debt, had reached a restructuring deal in December with about 70 percent of its creditors, but the deal needed legislation to pass by Jan. 22 to become effective. When Puerto Rico's lawmakers failed to meet that deadline, PREPA's largest bondholder group offered an extension, but PREPA rejected it, casting doubt on an agreement that had been 18 months in the making. PREPA announced yesterday that the agency and creditors had come to terms on an extension through Feb. 16, providing breathing room for lawmakers still debating tweaks to legislation. Read more. 

In related news, Senate Democrats yesterday sent a letter to Majority Leader Mitch McConnell calling for congressional action on Puerto Rico, demanding that legislation to resolve the island's financial crisis include tools to restructure debt, Reuters reported. "Restructuring legislation would not cost the federal government a single penny and would instead save U.S. taxpayers from the growing cost of inaction," said the letter to the Senate's Republican leader, signed by all 46 Democrats and independents. The letter is a challenge to Republicans who largely oppose letting the U.S. commonwealth restructure debt. Republican Sens. Orrin Hatch (Utah), Lisa Murkowski (Alaska) and Chuck Grassley (Iowa) last month introduced a bill to bring Puerto Rico's finances under federal oversight without providing for debt restructuring. Click here to read the letter. 

Additionally, the House Natural Resources Subcommittee on Indian, Insular and Alaska Native Affairs will hold a hearing on Tuesday at 11 a.m. ET titled “The Need for the Establishment of a Puerto Rico Financial Stability and Economic Growth Authority.” Witnesses to be announced. 

Experts gather next week San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium. 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. 

Puerto Rico has scheduled meetings Friday with representatives of several bondholder groups to discuss a possible restructuring of $70 billion of municipal bonds, the Wall Street Journal reported today. The meetings come as Puerto Rico struggles to make progress on two tracks, striking deals with bondholders and persuading U.S. legislators that the island merits relief from the U.S. government. Further complicating the process, the U.S. territory has more than a dozen types of bonds and is negotiating simultaneously with several creditor groups that have competing claims. Puerto Rico missed about $37 million of debt payments in January, while a tentative agreement expired between bondholders and the Puerto Rico Electric Power Authority. The government raised estimates of its financing gap by 15 percent last week, which investors expect will increase the losses Puerto Rico will push them to accept in a restructuring. Read more. (Subscription required.) 

In related news, the House Natural Resources Subcommittee on Indian, Insular and Alaska Native Affairs will hold a hearing on Tuesday at 11 a.m. ET titled “The Need for the Establishment of a Puerto Rico Financial Stability and Economic Growth Authority.” Witnesses to be announced. 

Experts gather next week San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium. 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 stepped back from pursuing bankruptcy after its mayor and New Jersey Governor Chris Christie reached an agreement on a plan that would give the state more control over the troubled gambling hub’s finances, Bloomberg News reported yesterday. The accord is aimed at keeping Atlantic City from seeking to have its debts written down in court, Christie, a two-term Republican, said yesterday at a press conference in Trenton with Mayor Don Guardian and Senate President Stephen Sweeney, the state’s highest-ranking Democratic lawmaker. The measures, which require approval as early as next month from the Democratic-controlled legislature, will set a five-year plan for restructuring debt, contracts and consolidating services, Christie said.

Bond investors are calling New Jersey’s actions to control Atlantic City’s teetering finances “bizarre” and “confusing” as the mayor says bankruptcy may be its best option, according to a Bloomberg analysis today. Local leaders, leery of state control, are meeting today to discuss bankruptcy. New Jersey, which has policies aimed at steering cities from financial disaster, must approve a municipal bankruptcy, which hasn’t happened since the 1930s. Senate President Steve Sweeney, the top Democratic legislator, says that a takeover will help solve the city’s problems outside of the courts — but investors say that isn’t a plan to reverse its fortunes.

Atlantic City, New Jersey's distressed gambling hub, had its credit rating cut four notches deeper into junk territory on Friday on the likelihood of a debt default in the next six months, Reuters reported on Friday. Standard & Poor's Ratings Services issued the super-downgrade of the city's bonds, to 'CCC-' from 'B,' because a default or distressed exchange or redemption "appears to be inevitable" unless there is an "unforeseen positive development," said S&P analyst Timothy Little. The city's cash flow will run dry by April unless the state takes extraordinary action to help. However, on Tuesday Governor Chris Christie vetoed legislation that had aimed to stabilize the city's property tax base and boost its current cash flow.

Atlantic City Mayor Don Guardian on Thursday called an emergency City Council meeting next week to discuss whether the distressed New Jersey gambling hub should file for municipal bankruptcy, Reuters reported yesterday. Governor Chris Christie's (R) veto on Tuesday of legislation that aimed to stabilize the city's tax base and boost its cash flow left the city with "no other option but to explore bankruptcy," Guardian said. State lawmakers have been pushing for a full takeover of city operations, saying local officials have not done enough to cut costs. Only city officials can file for bankruptcy, but the state, which already oversees the city's finances, must ultimately approve it.

Puerto Rico is trapped in a financial crisis so deep that President Obama says the only way out for the territory is to make it eligible for a bankruptcy-like process to shed some of its debts. None of the 50 states is nearly as bad off as Puerto Rico, but some officials are arguing that if a state does get into deep financial trouble, some kind of bankruptcy would be the best option — certainly better than a taxpayer bailout, according to a commentary in Bloomberg BusinessWeek today. States, unlike cities and counties, currently can’t declare bankruptcy. The case for allowing it is that a well-run proceeding apportions losses fairly and fast, according to experts. “Bankruptcy lets you get ahead of the problem,” says David Skeel Jr., a professor at University of Pennsylvania Law School and a leading advocate of giving federal bankruptcy protection to states. Without that option, he says, “what inevitably happens when you’re in deep financial distress is that you have to cannibalize other stuff. You cut police, schools, other services. You reinforce the downward spiral.”

A U.S. federal judge said yesterday that a second lawsuit over Puerto Rico's debt default will be joined with a similar suit in order to save time and money and avoid inconsistent rulings, Reuters reported. Financial Guaranty Insurance Co., or FGIC, sued Puerto Rico on Tuesday for diverting $164 million in revenue streams meant to pay the island's debt. The lawsuit mirrored one brought earlier this month by two other bond insurers, Assured Guaranty and Ambac Financial, which argues that the clawbacks violate the U.S. Constitution. The cases, both filed in U.S. federal court in Puerto Rico, are the first against Puerto Rico since Governor Alejandro Garcia Padilla called the U.S. territory's $70 billion debt load "unpayable" last June. The governor has said the only way to afford to pay debt backed by Puerto Rico's constitution was to clawback revenues earmarked for debt at other agencies. Read more.

In related news, the House Natural Resources Subcommittee on Indian, Insular and Alaska Native Affairs will hold a hearing on Tuesday at 11 a.m. ET titled “The Need for the Establishment of a Puerto Rico Financial Stability and Economic Growth Authority.” Witnesses to be announced. 

Join experts in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium, Feb. 4-6, 2016. 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. 

Illinois' two top Republican legislators said on Wednesday they will introduce legislation soon to let the state take over the cash-strapped Chicago public school system, permit the district to file for municipal bankruptcy and eventually allow for city-wide school board elections, Reuters reported yesterday. The plan has the backing of Republican Governor Bruce Rauner, who has embraced allowing local governments facing financial turmoil to file for bankruptcy. But it is strongly opposed by Chicago Mayor Rahm Emanuel, who controls the city's schools, the Chicago Teachers Union, and by Democratic leaders, who control the legislature. Senate Minority Leader Christine Radogno and House Minority Leader Jim Durkin, both Republican allies of Rauner, said a new approach is needed to rescue the Chicago Public Schools (CPS) from financial mismanagement and near collapse. The nation's third-largest school system has a structural budget deficit topping $1 billion and credit ratings that have fallen deep into the "junk" level. The district's current budget has a $480 million gap that officials hope to fill with bigger pension funding support from the state. But the plan has become entangled in a state budget stalemate between Rauner and Democrats.