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Puerto Rico, America’s Greece

Submitted by jhartgen@abi.org on

The origins and consequences of Puerto Rico’s debt crisis are eerily similar to those of Greece’s debt crisis, according to a Washington Post editorial. In both cases, a semi-sovereign, economically uncompetitive entity finds itself mired in slow growth but enmeshed in a currency union with a far larger and stronger neighbor. Both places have been enabled to live beyond their means by years of artificially easy credit — in Puerto Rico’s case, due to U.S. laws making its bonds “triple tax-free.” But, at last, the inevitable day of reckoning has arrived, and as the best and brightest young people cross open borders in search of opportunity, poverty is deepening and policymakers are belatedly waking up to financial reality.

Full editorial.

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Puerto Rico

Puerto Rico's Financial Crisis Is U.S.' Crisis, Too

Submitted by jhartgen@abi.org on
With the financial world transfixed by Greece's debt-driven meltdown, Puerto Rico announces it can't pay its $73 billion in debt. Once again, we're learning that welfare statism is no replacement for fiscal responsibility, according to an editorial in Investor's Business Daily. Compared to Greece's $353 billion in debt, Puerto Rico's $73 billion doesn't sound so big. On a per capita basis, it's about a third less. But appearances deceive. Puerto Rico is in deep, owing actually much more than that amount.
 
Read the full editorial.
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Puerto Rico

Puerto Rico Says It Cannot Pay Its Debt, Setting Off Potential Crisis in the U.S.

Submitted by STEVE@LGCPLLC.COM on
The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the U.S., The Washington Post reported yesterday. Puerto Rico’s move could roil financial markets and raises questions about the once-staid municipal bond market. In addition, with as much as $73 billion in debt, the island’s debt obligation is four times that of Detroit, which became the largest U.S. city to file for bankruptcy in 2012. Puerto Rico’s governor, Alejandro Garcia Padilla, will seek concessions from creditors, which range from mutual funds in the U.S. to large hedge funds that have been buying Puerto Rican debt at high interest rates, in an effort to stretch out loan payments and drive down borrowing costs that are hamstringing Puerto Rico’s struggling economy.
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A Way Forward.pdf
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Govt. Claims/Sovereign Immunity
Puerto Rico
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Puerto Rico Has No Easy Path Out of Debt Crisis

Submitted by jhartgen@abi.org on
Its economy has been mired in recession for years. The public is fed up with austerity. Investors want big premiums to lend to a government deep in debt, with no ability to devalue its currency. Greece? Try Puerto Rico, the U.S. commonwealth whose long-simmering debt crisis — its $72 billion debt equals nearly 70 percent of its economic output, far more than any U.S. state — is about to come to a boil, according to an editorial in The Wall Street Journal.
 
Full editorial. (Subscription required.)
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Puerto Rico

Federalism Form and Function in the Detroit Bankruptcy

Submitted by jhartgen@abi.org on
by Melissa B. Jacoby 
University of North Carolina (UNC) at Chapel Hill - School of Law
 
This article tests the premise of limited federal court involvement in municipal bankruptcy cases against the real world of Detroit’s restructuring. The study is based on listening to digital audio recordings of court hearings and status conferences throughout the case in nearly real time, coupled with other primary source materials. Under the right conditions, we learn, a federal court can formally honor the explicit restrictions in the Bankruptcy Code while functionally exercising significant influence throughout a chapter 9 case. Some of the channels of influence operate beyond public view, including confidential mediation overseen by a powerful chief district judge and the court's feasibility team that, according to witness testimony, collaborated quite extensively with city officials. These tools form what I call the Detroit Blueprint – a procedural precedent sure to affect other municipal restructurings more than the (limited) substantive doctrine the case generated.
 
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Puerto Rico

MatlinPatterson Said to Seek Cash for Beleaguered Puerto Rico

Submitted by STEVE@LGCPLLC.COM on
MatlinPatterson Global Advisers is raising money to invest in Puerto Rico, the beleaguered commonwealth that’s attracting debt investors wagering on a rebound, Bloomberg News reported yesterday. The firm, which oversees $7.5 billion, has invested about $150 million in the island. The New York-based firm is raising cash for a standalone strategy for investments in the island, after first making forays into Puerto Rico debt two years ago. MatlinPatterson is expanding its involvement as the island’s financial woes pile up. Poorer than the poorest U.S. state, Mississippi, and with $72 billion in debt, Puerto Rico is drawing the interest of firms including Fir Tree Partners, Knighthead Capital Management, D.E. Shaw & Co. and Canyon Partners, which believe they can profit from helping the commonwealth restructure debt and turn around its economy. Read more.
 
In related news, Puerto Rico's distressed power authority PREPA will meet in New York on Thursday with its creditors, who have proposed a new debt restructuring plan in response to PREPA's proposal earlier this month, Reuters reported yesterday. The creditors' plan is based on the same capital expenditure and other financial assumptions as PREPA's plan, but would give the debt more favorable treatment. Read more. 
 
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Finance and Banking
Municipal Bankruptcy
Puerto Rico

Puerto Rico Governor Says Declaring Bankruptcy Was Option

Submitted by STEVE@LGCPLLC.COM on

Puerto Rico's governor confirmed yesterday that his administration recently pursued a proposal to request that the U.S. Congress allow the island's heavily indebted government to declare bankruptcy amid an economic crisis, the Associated Press reported yesterday. Gov. Alejandro Garcia Padilla's public acknowledgement of the proposal comes as the U.S. territory struggles with $72 billion in public debt amid a nearly decade-long economic slump. Garcia said that he has since rejected the proposal in favor of the current push to get rules that would allow only Puerto Rico's public agencies to file for bankruptcy under chapter 9. A U.S. House committee is studying the issue amid growing concerns about the government's ability to repay its debt. Declaring complete bankruptcy for the whole island government would not have been good for Puerto Rico, Garcia said. Pedro Pierluisi, Puerto Rico's representative in Congress, criticized Garcia for pursuing such a proposal in private. "It's an irresponsible move that greatly damages Puerto Rico's image before Congress and the financial markets," Pierluisi said.

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Finance and Banking
Municipal Bankruptcy
Puerto Rico
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Puerto Rico Tax Revenue Drops 14.1 Percent in May

Submitted by STEVE@LGCPLLC.COM on

Puerto Rico's net tax haul was $646.9 million in May, 14.1 percent below the same month last year, the U.S. territory's Treasury said on Friday, Reuters reported. The Treasury attributed the decline to one-time transactions last year. May's collections brought the fiscal year-to-date total to $7.98 billion, $44.7 million lower than the $8.03 billion of a year earlier and $314.7 million below the government's target.

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Finance and Banking
Puerto Rico
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Puerto Rico Path to Easing Cash Crunch Hinges on Insurer Demands

Submitted by STEVE@LGCPLLC.COM on

Puerto Rico wants insurers such as Assured Guaranty Ltd. and MBIA Inc. to guarantee some of the $2.9 billion of bonds that it plans to sell to stave off insolvency, Bloomberg News reported yesterday. The problem is that the insurers’ willingness to participate in the new deal depends on the amount of losses they’re forced to take on $2.6 billion of debt issued by the island’s power authority that they already back, according to Melba Acosta, president of Puerto Rico’s Government Development Bank. Bond insurers pledge to pay investors if a borrower defaults on guaranteed debt or reduces insured obligations through negotiations. “This is sort of their last shot at finding liquidity,” said Daniel Hanson, an analyst at Height Securities LLC, a Washington, D.C.-based broker dealer. If Puerto Rico is able to sell the new bonds “they need to get it done at enough size to avoid coming back to market again.”

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Finance and Banking
Municipal Bankruptcy
Puerto Rico
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