%1

Sen. Chuck Grassley (R-Iowa), who chairs the Senate Judiciary Committee, said yesterday that he will convene a hearing on Puerto Rico's financial turmoil on Dec. 1, Reuters reported yesterday. Grassley said that he wants to help the committee and the public "gain a better understanding of the root cause of Puerto Rico's fiscal problems, discuss what's currently being done, and consider what options are available." Puerto Rico, a U.S. commonwealth facing $70 billion in debt and a roughly 45 percent poverty rate, is barred from filing for bankruptcy under federal insolvency laws. Legislative proposals to give the island access to a debt restructuring process have been supported in one form or another by the island's government, some presidential candidates, and the Obama administration. Lawmakers, however, have signaled that it might take Congress a long time to enact a legislative solution for Puerto Rico, and have urged the U.S. Treasury to do more to help the island. Read more. 

For more on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage. 

Moody's Investor Service said yesterday that Puerto Rico is likely to default on at least some of its $355 million in debt payments due Dec. 1, citing growing liquidity pressures, Reuters reported. The U.S. commonwealth, facing around $70 billion in total debt, is struggling to breathe life into a stalled economy with a roughly 45 percent poverty rate. Moody's has rated Puerto Rico Caa3 negative, one of the lowest ratings possible, indicative of obligations of “a very high credit risk.” The ratings service said in a note yesterday that the island "continues to operate with extremely limited internal liquidity and no access to external sources of financing." The debt due on Dec. 1 was issued by Puerto Rico's Government Development Bank. About $273 million of it is so-called general obligation (GO) debt, which is considered the island's highest priority debt and protected by its constitution. The GDB has said that it will make the payment, but Moody's was skeptical, noting that Puerto Rico has another $330 million in GO debt due on Jan. 1. Read more. 

For more news and analysis on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage. 

New Jersey Governor Chris Christie (R) must act on five bills intended to stabilize the finances of Atlantic City or they will become law on Monday without his signature, Bloomberg News reported yesterday. The legislation would have casinos make fixed payments instead of property taxes, divert gambling-tax revenue that’s used for redevelopment projects to debt service, shift marketing funds to the city, provide more aid to schools and protect benefits for casino workers. By establishing a revenue stream from the casinos, city officials would avoid battling them over property-tax appeals that could “significantly strain city finances, conceivably driving the city into bankruptcy,” Moody’s Investors Service said in a July report. Atlantic City closed a $101 million budget deficit this year partly by anticipating $33.5 million of revenue from casinos that now goes to redevelopment projects and marketing.

The Puerto Rico Electric Power Authority, the island’s main electricity provider, has entered into a debt-exchange agreement with some of its bondholders and hedge funds that puts the utility a step closer to reducing its $8.3 billion debt load, Bloomberg News reported yesterday. The accord wraps up a preliminary pact unveiled in September that calls for investors to take losses of as much as 15 percent in the transaction, according to a statement Thursday from the utility, known as PREPA. The pact stipulates that legislation authorizing the debt restructuring that was introduced this week must be passed in November and that the exchange must be executed by June 30, 2016, according to a statement from the bondholder group. Hedge funds and municipal mutual funds holding about 35 percent of the agency’s bonds, fuel-line lenders and the Government Development Bank, which lends to the island’s agencies, signed on to the final pact. The agreement doesn’t include bond-insurance companies MBIA Inc., Assured Guaranty Ltd. and Syncora Guarantee Inc., which guarantee about $2.5 billion of the utility debt against default. Read more. 

Will a form of chapter 9 bankruptcy protection help Puerto Rico's debt crisis? Register your vote on ABI's new Twitter poll! 

For the latest news and analysis on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage. 

Hedge funds’ involvement in the Puerto Rico debt crisis is leading U.S. Representative Nydia Velazquez (D-N.Y.) to propose legislation that would force the firms to reveal more about their investments, Bloomberg News reported yesterday. Velazquez, who sits on House Financial Services Committee, wants hedge funds to file with the Securities and Exchange Commission whenever they acquire at least 1 percent of a company’s stock, down from the current 5 percent threshold. The bill she has drafted would apply the same disclosure requirement to debt and derivatives. Hedge funds have drawn scrutiny for snapping up Puerto Rico bonds, whose prices have tumbled as the island’s fiscal crisis escalated. Velazquez said that the funds may be advocating for spending cuts that would hurt Puerto Ricans and against legislation that would let some agencies file for bankruptcy, which would allow them to cut their debts in U.S. court. Read more. 

In related news, Puerto Rico Governor Alejandro Garcia Padilla’s administration sent to the island’s legislature a bill that would give its main electricity provider power to restructure about $8.3 billion of debt, Bloomberg News reported yesterday. The Puerto Rico Electric Power Authority, known as PREPA, has been negotiating since August 2014 with its creditors on how to ease the utility’s debt payments and modernize a system that relies heavily on crude oil to produce electricity. PREPA faces a $1 billion shortfall for the fiscal year ending June 30, 2016, according to the governor’s legislation. The utility has a $196 million interest payment due to bondholders on Jan. 1. 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 Obama administration released its Puerto Rico plan last week to give the entire Commonwealth of Puerto Rico the ability to file for chapter 9 bankruptcy to deal with its debt crisis. Any bankruptcy bill for Puerto Rico would punish retirees whose pension funds invested in these bonds because they were tax-free, had strong security and were explicitly protected from chapter 9, according to a commentary by former governor and U.S. Senator Judd Gregg in The Hill yesterday. Conversely, it would reward Puerto Rico and its politicians for years of irresponsible spending and poor fiscal policy, according to Gregg. Equally significant is the implication of this new type of chapter 9 for American investors in the near-future. Illinois, New Jersey, Pennsylvania, Connecticut are among the states with large unfunded liabilities facing fiscal crises — and the list is growing at an alarming speed, according to Gregg. If such a protection were extended to Puerto Rico, he asks, why wouldn’t those states expect equal access to this new form of chapter 9? Read more. 

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