Thread: Puerto Rico defaults on $422 million

By Heather Long

Puerto Rico defaults on $422 million

Governor: 'I decided that essential services for citizens came first'

UPDATED 7:01 PM EDT May 02, 2016
fighters battle

Shutterstock/CNNMoney

NEW YORK (CNNMoney) —Puerto Rico is dialing 9-1-1 for any help it can get.

• PUERTO RICANS LEAVING ISLAND AT HISTORIC RATE
  
  
  Puerto Ricans are leaving the island for the mainland United States at a historic rate.
• The commonwealth's Institute of Statistics revealed Sunday the results of its analysis on 2014 migration, which found that Puerto Rico lost almost 2% of its popula...

• The $1.8 million bond payment is due May 1, which is a Sunday, which means the city won't have to pay until Monday, May...
  MORE

The island was unable to make a $422 million debt payment due Monday. It's another alarm bell of how bad the situation is getting on the island.

Governor Alejandro Garcia Padilla calls it a "humanitarian crisis," which a step above an economic emergency. He claims he is prioritizing paying Puerto Rico's police and teachers over Wall Street.

"I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first," the governor said in a speech Sunday.

This is the third time the island has defaulted on bond payments. The island paid the interest due Monday, but not the principal amount, resulting in a default of about $370 million, Puerto Rico's largest yet.

Puerto Rico is $70 billion+ in debt

Puerto Rico is deep in debt. It owes over $70 billion to creditors. For months, Garcia Padilla has warned that Puerto Rico doesn't have enough money to pay its creditors.

Another huge payment is due July 1. The island's best hope is that Congress will act before then to provide some sort of relief, such as granting a temporary moratorium on payments until a plan can be worked out.

"We're very far from the end," says Philip Fischer, the managing director of municipal bond research at Bank of America Merrill Lynch. "It's clear Congress doesn't know how to handle this."

What will Congress do?

Congress is in the midst of finalizing an aid package for Puerto Rico. The big sticking point is whether there will be some sort of "Oversight Board" overseeing the island's finances for awhile, similar to the model used for Washington D.C. in the late 1990s.

Garcia Padilla and others on the island hate the current proposal. They argue Puerto Rico would lose its democratic rights if the Oversight Board can make decisions that supercede those of elected officials on the island.

The governor believes the solution is simple: Puerto Rico should be granted Chapter 9 bankruptcy rights -- or something similar -- to make it easier for the island to restructure some of its debts, akin to what Detroit did.

But many creditors and Republican lawmakers argue that the island has had years of political and financial mismanagement and needs someone from the outside to come in and restore credibility. The island still has not completed its 2014 audit, for example.

"Congress has a Constitutional and financial responsibility to bring order to the chaos that is unfolding in the U.S. territory," Republican House Speaker Paul Ryan said last month.

"Legally, this is very complicated," says the long-time municipal bond expert Fischer, who is a lawyer himself.

What's next for Puerto Rico

The missed debt payment Monday is on bonds issued by the Government Development Bank, the economic development arm of the island's government. The big fear is that Puerto Rico will default on what is known as General Obligation debt in July.

Puerto Rico owes $1.9 billion on July 1.

"Our resources are so scarce that we are struggling to pay the fuel supplier for the police patrol cars and emergency response vehicles," Governor Garcia Padilla says.

Puerto Rico's missed payments impact its own residents. Many retirees and savers are owners of the bonds. Wall Street hedge funds and other municipal bond funds hold the rest. But so far the overall U.S. bond market has not been negatively effected.

"It's very serious, but the rest of the bond market is not expecting any contagion from it," says Fischer.

http://www.wesh.com/money/puerto-ric...llion/39339544

No bailout with taxpayer money! If they do this, every City in the Nation will pull the same stunt. Baltimore wanted our Federal tax dollars to rebuild after THEIR Mayor incited the riots and they burned and looted the City. No money to these cities! Now Flint wants taxpayer money because of their incompetent leaders and the water problems. Chicago is a mess, Detroit can't pay teachers, the list is long!

Our cities are cash strapped due to the illegal alien invasion and the BILLIONS they cost each and every one of our States. These illegals cost us ONE TRILLION a year across the board in school, housing, medical, welfare, food stamps, diseases, rape, murder, destroying property values, DUI, lawyers, judges, law suits, court, jail, prison, the costs are astronomical!

No bail out!

Puerto Rico: The Next Detroit? or Hong Kong?

Thu May 19, 2016 6:15pm EDT

Bipartisan Puerto Rico crisis bill introduced, debt looms

NEW YORK/WASHINGTON | BY DANIEL BASES AND SUSAN HEAVEY

A protester holding a Puerto Rico's flag takes part in a march to improve healthcare benefits in San Juan, Puerto Rico, November 5, 2015.
REUTERS/ALVIN BAEZ

U.S. lawmakers on Thursday began coalescing around revised bipartisan legislation to help address Puerto Rico's unpayable debt burden, which now threatens a full-blown humanitarian crisis.

Released close to midnight on Wednesday, the House Natural Resources Committee's revised bill includes a strong oversight board to direct how and when the island pays its bills and leaves many earlier proposals in place.

Puerto Rico has already defaulted on some of its roughly $70 billion in debt while trying to cope with a 45 percent poverty rate among its 3.5 million U.S. citizens. In addition, it is reeling from a Zika virus outbreak that is hurting its critical tourism industry.

Language allowing Puerto Rico to cut repayments to creditors without their consent, known as a "cram-down," remains. The bill does not prioritize pensioners over bondholders, but the language remains muddied, one analyst surmised.

"Tonight, we introduced legislation to responsibly address the crisis in Puerto Rico. The revised bill incorporates technical refinements and input from all stakeholders," committee Chairman Rob Bishop said in a statement.

For a link to a factbox on the bill, click.

While both Republican and Democratic leaders of the U.S. House of Representatives welcomed the bill after several delays, how more conservative Republican lawmakers view the legislation is an open question.

A vote on the bill by the House is expected in the first week of June, ahead of a looming $1.9 billion debt payment due on July 1.

In recent months, the debt crisis has threatened a deepening humanitarian crisis as hospitals close wards, social services decline and emigration saps more economic activity.

"After long bipartisan negotiations, we believe we have achieved a restructuring process that can work," U.S. House Democratic Leader Nancy Pelosi said in a statement on Thursday.

RELATED COVERAGE

• › FACT BOX: Puerto Rico debt crisis bill keeps oversight board

House Speaker Paul Ryan, who faces opposition to the bill from within his own Republican ranks, highlighted the bipartisan effort as he will need Democrat votes to get it passed.

"Right now, the stability of the U.S. territory is in danger, as the Puerto Rican government continues to default on major loan payments. We have insisted that our response meet basic principles, and first among them is protecting taxpayers from a bailout," Ryan said in a statement.

PROMESA
The bill, formally known as the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), seeks to return the island to solvency, rebuild a base for economic growth and maintain its ability to access capital markets in the future.

The White House called the bill an "important first step" in creating a fair process for restructuring Puerto Rico's debt and economy after a decade of recession.

The U.S. territory's governor, Alejandro Garcia Padilla, said he was encouraged by the bill but chafed at the oversight board, which he believes undermine the island's self-governance.

Choosing the members of the oversight board has been a sticking point in the talks leading up to the introduction of the bill.

U.S. Treasury Secretary Jack Lew said on Thursday he was pleased the bill includes "restructuring tools for Puerto Rico that are comprehensive and workable" but expressed disappointment that proposals to promote economic growth were left out of what he called a "tough bipartisan compromise."

In the early drafts of the bill, Senator Orrin Hatch of Utah, the chairman of the powerful Senate Finance Committee, said he was not satisfied, meaning a potential hurdle for passing the bill could remain.

A conservative Tea Party favorite, Representative Raul Labrador of Idaho, said he was reviewing the bill but told Reuters he thought a majority of Republicans would "support it through both houses of Congress."

Many creditors lobbied for a bill that does not create new precedents for how they might be treated in a restructuring which would potentially set up future legal fights on the U.S. mainland that are far away from the island's current crisis.

"The bill, which creates a control board and allows for bankruptcy, is highly controversial and does not definitively protect any creditors. We believe the legislation is more positive for both GO and COFINA creditors than the legislation previously under review," wrote Heights Securities analyst Daniel Hanson.

Hanson said the bill lacks clarity over the treatment of constitutionally protected bondholders versus pensioners.

A local bondholder group said it supported the bill. "As imperfect as it may be, the bipartisan bill is the 'pause' that is desperately needed so everyone can come together to forge a bright future for all Americans living in Puerto Rico," said Jorge Irizarry, president of the Backyard Bondholders, which represents more than 60,000 resident bondholders in Puerto Rico.

GO, or General Obligation bonds are backed by the full faith and credit of the island and are senior to all debt, while COFINA debt is backed by sales tax revenues.

"This territories-clause bill, which will bring all creditors to the table and establish a strong and independent fiscal oversight board, should appeal to conservatives who were concerned about a ‘bailout’ or ‘contagion,'" the COFINA Senior Bondholders Ad Hoc Group said in a statement.

Investors bid up prices on Puerto Rico's benchmark July 2035 GO debt to 66, a gain of 0.50 point in price to yield 12.797 percent, according to MSRB data.

http://www.reuters.com/article/us-pu...-idUSKCN0YA1TU

Puerto Rico rescue bill advances to full House vote


May 25, 2016

View photos
A worker takes off U.S and Puerto Rican flag after rally of U.S. Democratic presidential candidate Bernie Sanders in San Juan, Puerto Rico, May 16, 2016. REUTERS/Alvin Baez
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By Patrick Rucker

WASHINGTON (Reuters) - U.S. lawmakers on Wednesday backed a plan to help Puerto Rico escape crippling debt and expand the economy, a move that could put a rescue before the House of Representatives within days.

The House Natural Resources Committee endorsed the plan by a 29-10 vote and left intact most provisions endorsed by House Speaker Paul Ryan.
The plan would empower a federal oversight board to negotiate with investors and decide what they would recover from the roughly $70 billion they lent the island.

Taxpayer money will not be spent in the rescue which would prevent a bailout, Ryan's office said in a statement on Wednesday.

Puerto Rico's Governor, Alejandro Garcia Padilla praised the bill for elements to help address insolvency, protect essential services and grow the economy. However, he reiterated reservations about the broad power of the oversight board.

"Puerto Ricans are Americans and our democratic rights need to be protected, just like those of American citizens living on the mainland, and the oversight provisions do not meet that obligation," he said in a statement, urging Ryan to amend the bill before it goes to the full House for a vote.

Under the plan, investors may not sue Puerto Rico while the oversight board does its work, and all the island's creditors could face a loss despite recent lobbying from Wall Street interest groups.

Among Republicans who voted on Wednesday, more than half endorsed the rescue plan but a vocal minority warned that it would hurt investor demand for municipal bonds and force issuers to offer higher yields.

"Taxpayers across the country will have to pay ... as markets adjust to this new world," warned Congressman Tom McClintock of California.

The bill, called the Puerto Rico Oversight, Management, and Economic Stability Act, passed without significant changes.

Speaker Ryan and Nancy Pelosi, the top Democrat in the House, in separate statements on Wednesday touted bipartisan support for the bill. If that holds, lawmakers may guide the rescue past the Senate to President Barack Obama before $1.9 billion in Puerto Rico debt is due on July 1.

Republicans may demand more concessions while some Democrats find the oversight board too punitive.

Democrats also want guarantees that the island's pension system, which has a shortfall of $40 billion, would be protected first.

With the House and Senate set to begin a week-long Memorial Day holiday break at the end of this week, debate of the bill by the full House is not expected until sometime in June.

https://www.yahoo.com/news/u-lawmake...ess.html?nhp=1