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Seven years after their ranks were decimated by the housing crisis, bond insurers are back in the spotlight as Puerto Rico struggles to stave off default, the Wall Street Journal reported today. Companies including Assured Guaranty Ltd., MBIA Inc. and others insure more than $14 billion out of the $72 billion in debt outstanding by the commonwealth’s government, utilities and other agencies, according to financial documents from the insurers. But investors and analysts say that the lack of detailed disclosure has made it hard to assess the insurers’ capacity to pay potential Puerto Rico claims should the territory default. While companies disclose principal and interest owed across their entire portfolios, sizable interest costs aren't disclosed for individual bonds in some cases — including certain Puerto Rico debt. Read more. (Subscription required.) 

In related news, Assured Guaranty Ltd. Chief Executive Officer Dominic Frederico said that investors in Puerto Rico’s public agencies could feel like victims of a “bait and switch” if the corporations were permitted to file for bankruptcy, Bloomberg News reported on Friday. On Friday, Frederico said that Congress should carefully consider the consequences of a bill, introduced by Pedro Pierluisi, Puerto Rico’s nonvoting congressional delegate, that would allow such a move. Assured guarantees bonds of the junk-rated Caribbean commonwealth. Puerto Rico warned in a quarterly filing on Thursday that it could place a moratorium on debt servicing or use income from its public corporations to repay obligations in the next fiscal year if the government can’t enact spending cuts or generate more revenue. The commonwealth of 3.5 million and its agencies owe $72 billion. Assured had about $6 billion of exposure to Puerto Rico bonds as of March 31, financial documents show. Read more.

Citibank has sold a $146 million loan it had with the Puerto Rico Electric Power Authority (PREPA) to a distressed debt investment firm, two sources said yesterday, in a sign of the growing uncertainty over the utility's finances, Reuters reported yesterday. PREPA's bank lenders and other bondholders are disputing who has priority in loan repayments, said one of the sources, who are familiar with the utility's ongoing, private debt restructuring talks and requested anonymity. Citi sold its loan to Solus Alternative Asset Management, the sources said. Solus replaced Citi in an April 30 forbearance agreement with PREPA's lenders posted on the website of Puerto Rico's Government Development Bank. 

The southern California city of San Bernardino has proposed virtually eliminating retiree health insurance costs under a bankruptcy exit plan it must produce by May 31, Reuters reported yesterday. Steven Katzman, who represents a committee of retirees in talks with the bankrupt city, says a tentative deal has been struck under which retirees would sacrifice the city subsidies they currently receive for health care coverage in exchange for a guarantee that San Bernardino continues to fund and not cut current pension benefits. The deal would follow an approach taken in the recent bankruptcies of Detroit and Stockton, Calif., where retiree health care was slashed or eliminated, while pensions emerged relatively unscathed. San Bernardino recently said that it intends to pay its biggest creditor — CalPERS, the state's powerful public employee pension fund, with assets of $300 billion — in full. Under the proposed San Bernardino deal, retirees would agree to permanently accept drastic cuts to health care coverage that have taken effect in recent months, Katzman said. Under those changes, retirees' were moved from an insurance pool that includes current, younger workers to an "unblended" pool of only retired workers, hiking their premiums significantly. A monthly subsidy of $112 that the city provided retirees to help with premiums was also scrapped, though a small number of older employees who are ineligible for Medicare will still receive a small stipend, Katzman said.

Chicagoans should pay close attention to a new warning from Moody's Investors Service: The city must solve the crisis devouring its public employee pension funds, but even if it does, there's extremely rough going ahead, according to a Chicago Tribune editorial today. "In our opinion, the pursuit of bankruptcy is not on the near-term horizon for Chicago," Moody's offered on Friday in an eight-page note. "If Chicago's pension funds continue toward insolvency, however, our opinion may change." Moody's frames Chicago's financial future as a dilemma that confronts Mayor Rahm Emanuel and the City Council with "tough choices now or tougher choices later." Moody's cites two current state laws that require City Hall to put much bigger amounts into pension funds, although a pending Illinois Supreme Court ruling could undercut one of those laws. If the laws stand, though, the good news is that Chicago would be replenishing the funds. The bad news: Doing that would savage the city budget, according to the editorial. On the current schedules, payments into pension funds will top $1.1 billion in 2016, a jump of 135 percent from this year, Moody's calculates. Ten years later, in 2026, payments total $1.9 billion, quadruple the 2015 amount.

Puerto Rico is trying to revive a law allowing its public agencies and utilities to restructure their mounting debt as Detroit and other U.S. cities have done, Bloomberg News reported yesterday. Creditors won the first fight in the case by persuading a federal judge in San Juan to throw out bankruptcy protections similar to those allotted municipal entities in the 50 U.S. states. Puerto Rico today is asking the U.S. Court of Appeals in Boston to reverse that ruling as the commonwealth struggles with $73 billion in debt. By blocking enforcement of the restructuring law, the lower court relegated Puerto Rico “to an anomalous legislative no man’s land,” lawyers for Governor Alejandro Garcia Padilla and Secretary of Justice Cesar R. Miranda Rodriguez said in a court filing. “If Congress had intended to leave utilities, and the people they serve, at the mercy of their creditors, it surely could and would have so indicated.” Franklin Resources Inc. and OppenheimerFunds Inc. investment funds and BlueMountain Capital Management LLC won a ruling in February from the judge in San Juan that the local restructuring law was in “irreconcilable conflict” with federal statutes. The firms, which at one time held about $2 billion in bonds issued by the Puerto Rico Electric Power Authority, alleged that the new law might force them to accept unfavorable restructuring terms if the heavily indebted utility sought to use it.

Puerto Rico’s House of Representatives rejected a tax-overhaul bill that would have paved the way for a $2.9 billion debt sale needed to avert a cash crunch, pushing prices on the commonwealth’s newest bonds to a record low, Bloomberg News reported on Friday. The chamber voted against the measure 28 to 22 on Thursday, said Ileana Baez Bravo, a spokeswoman for Governor Alejandro Garcia Padilla. The bill, which failed to gain unanimous support from legislators of the governor’s Popular Democratic Party, would have introduced a 13 percent levy on goods and services along with a 1 percent sales tax. Last week, the Government Development Bank warned that the government may shut down within three months because of a lack of funds. The Development Bank, which handles the U.S. commonwealth’s debt sales, has said passage of the tax plan is essential to attract investors to the planned bond deal. The bank’s net liquidity declined to $1.1 billion as of March 31 from $2 billion in October. 

Puerto Rico's electric power authority, PREPA, struggling with $9 billion of debt, won agreement from creditors to extend a forbearance agreement by 35 days, according to statements by a key bondholder faction and PREPA, Reuters reported yesterday. Under the new agreement, which expires on June 4, PREPA has agreed to a June 1 deadline to provide creditors with a debt restructuring plan, said the group, which represents 40 percent of all PREPA bondholders. "During the new forbearance period, PREPA will have the opportunity to provide information to its creditors and meet on a timely basis to discuss all the elements of a plan that will improve PREPA," said the group, led by Franklin Advisers and OppenheimerFunds.

Investors in the debt of Puerto Rico’s power utility have offered a 30-day extension of a creditor agreement that expires today, Bloomberg News reported today. The Puerto Rico Electric Power Authority (PREPA) has $8.6 billion of securities. Under the bondholder offer, the electricity provider would give creditors a restructuring plan by June 1. Bondholders, insurance companies and banks signed a contract with PREPA in August that put off default. The group has extended the agreement twice for additional 15-day periods.

Puerto Rico’s public agencies should be able to seek bankruptcy, Jeb Bush, a probable presidential candidate, said yesterday during a visit to the U.S. territory, Bloomberg News reported yesterday. Commonwealth officials are promoting a bill that would enable some agencies to access chapter 9 under federal bankruptcy law. Junk-rated Puerto Rico, which has struggled to grow since 2006, and its agencies are struggling under $73 billion of debt. The island’s main electricity provider is in discussions with creditors and may ask them to take a loss on about $8.6 billion. Like U.S. states, Puerto Rico, a self-governing island of 3.5 million, cannot file for bankruptcy. Municipalities on the mainland can seek chapter 9, though commonwealth localities are unable to do so. Seeking to change that disparity, Pedro Pierluisi, Puerto Rico’s nonvoting congressional delegate, filed the legislation in February.

Louisiana's public colleges are hoping for the best but preparing for the worst as they face a drop in state funding of up to 82 percent, NBCNews.com reported on Friday. As the state legislature fails to make headway covering a $608 million shortfall in higher education spending, its public colleges are bracing for the prospect of budget cuts so deep some institutions — including the state's biggest public flagship — might have to declare financial exigency. That's college funding-speak for something akin to bankruptcy. The potential threat to Louisiana's public colleges is unprecedented, said Jordan Kurland, associate general secretary of the National American Association of University Professors. Under financial exigency, a bankruptcy-like status that gives institutions a legal pathway to change contracts or other financial obligations, schools would have more freedom to lay off tenured professors or eliminate programs and departments. "We need to have every tool at our disposal to survive," said F. King Alexander, president and chancellor of the Louisiana State University system, who added that the school still hoped to avoid exigency. "We're optimistic that we can get through this, but as managers of the institution, we've got to play out every scenario," he said.