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S&P Junks Puerto Rico On Liquidity Concerns, Warns About $1 Billion Collateral Call - Full Note

Tyler Durden's picture




 

Following the evaluation of liquidity needs (and availability) for the Commonwealth of Puerto Rico, S&P has decided that "it doesn't warrant an investment-grade rating":

  • PUERTO RICO GO RATING CUT TO JUNK BY S&P, MAY BE CUT FURTHER
  • GOVT. DEVELOPMENT BANK FOR PUERTO RICO CUT TO BB FROM BBB-:S&P
  • PUERTO RICO GO RATING LOWERED TO 'BB+': S&P
  • PUERTO RICO REMAINS ON WATCH NEGATIVE FROM S&P

Both the G.O.s and the Development Bank have been cut. Note that 70% of muni mutual funds own this - and it is unclear if a junk rating forces (by mandate) funds to cover. Worst of all, S&P warns Puerto Rico could now face a $1 billion collateral call on short-term debt - the same waterfall collateral cascade that took down AIG.

Full note:

Puerto Rico GO Rating Lowered To 'BB+'; Remains On Watch Negative

NEW YORK (Standard & Poor's) Feb. 4, 2014--Standard & Poor's Ratings Services has lowered its rating on the Commonwealth of Puerto Rico's general obligation  (GO) debt to 'BB+' from 'BBB-'. At the same time, we have downgraded  Commonwealth appropriation secured debt and Employee Retirement System (ERS) debt to 'BB'. All of our ratings remain on CreditWatch with negative  implications.

The downgrades follow our evaluation of liquidity for the Commonwealth,  including what we believe is a reduced capacity to access liquidity from the  Government Development Bank (GDB) of Puerto Rico. In a related action, we downgraded the GDB to 'BB', and the rating remains on CreditWatch with  negative implications. We also believe that the Commonwealth's access to liquidity either through GDB or other means will remain constrained in the medium term, even in the event of a potential issuance of debt planned next month. We believe that these liquidity constraints do not warrant an investment-grade rating.

The negative CreditWatch reflects uncertainties relating to the Commonwealth's constrained access to the market, as well as our assessment of the size and timing of potential additional contingent liquidity needs.

That the rating is not lower is due to the progress the current administration has made in reducing operating deficits, and what we view as recent success with reform of the public employee and teacher pension systems, which had been elusive in recent years. We view the reform as significant and could contribute to a sustainable path to fiscal stability. We view the current administration's recently announced intent to further reduce appropriations in fiscal 2014 by $170 million and budget for balanced operations in fiscal 2015 as potentially leading to credit improvement in the long run, but subject to near-term implementation risk that could lead to further liquidity pressure to the extent deficits continued. We also note the sustained commitment through a range of financial and economic cycles to funding debt obligations and providing what we view as strong bondholder security provisions.

In our view, Puerto Rico has limited liquidity without access to the debt market by either GDB or directly by the Commonwealth for sizeable amounts of debt, and may also need further market access to finance a potential fiscal 2015 operating deficit, notwithstanding current efforts to close the deficit. The planned near-term sale of sizeable Commonwealth tax-backed debt will refinance existing GDB loans into long term debt at potentially high interest costs, adding to an already high debt service burden. While we believe such a sale would provide temporary liquidity into fiscal 2015 and could be an important stabilizing factor, we believe there remain implementation risks over the next year in light of continued economic weakness. In our view, there is little margin for error over the next two years in its plan to reduce operating deficits, and potential difficulty financing future deficits larger than currently projected by the Commonwealth. Pending legislation would also raise the authorization of GDB to sell debt with a Commonwealth GO guarantee to $2.0 billion from $500 million, although the GDB has said that it plans to make only limited use of this option.

We have lowered the appropriation and ERS-secured bond ratings further than the GO rating to reflect our view that liquidity and market access risk have been heightened following our downgrade of the Commonwealth, making it less likely that the Commonwealth would prioritize appropriation debt payments in order to preserve market access for GO debt.

We have also lowered various ratings on the Puerto Rico Highways and Transportation Authority (HTA) to the same rating as the Commonwealth GO at 'BB+', and kept it on CreditWatch with negative implications, to reflect the potential diversion of gas tax-derived revenue to pay GO debt service under the Puerto Rico constitution. We have not taken a rating action on sales tax-secured debt of the Puerto Rico Sales Tax Financing Corp. (COFINA), but have retained our negative outlook on our COFINA ratings reflecting our view of the economic outlook and that COFINA sales tax is not subject to the prior diversion of revenue for GO debt service payments.

In our view, contingent liquidity risks totaling $940 million in the event of a downgrade include $257 million of potential GO variable rate demand obligation (VRDO) debt acceleration, $39 million of additional GO interest rate swap collateral posting, $575 million of HTA debt acceleration, and $69 million of additional swap collateral posting. Puerto Rico calculates that $375 million of HTA bond anticipation notes currently outstanding in the amount of $400 million would remain outstanding following a 180-day acceleration provision, while the remaining debt accelerations would need to be paid within 30 days of a downgrade. We understand that the GDB is currently negotiating to have certain debt holders waive acceleration provisions and arranging for new multi-year external bank credit lines that could mitigate  near-term liquidity risks. The $940 million total includes only the current additional capital requirements in the event of a one-notch downgrade.

Also not included in the $940 million total is the need to finance the remaining portion of the fiscal 2014 Commonwealth operating deficit not already financed by GDB, or a potential 2015 deficit, if one were to develop. We believe the Puerto Rico Electric Power Authority would not have to post additional collateral in the event of a one-notch downgrade. The Commonwealth has reported that general fund revenues and expenses are performing better than originally budgeted in the first half of fiscal 2014, with revenues $93 million better than budgeted through December 2013, and expenses $19 million under budget through November. However, we believe this may not fully reflect sales taxes that are under budget, since sales taxes do not flow into the general fund in the first part of the year until COFINA annual debt service is fully paid.

The Commonwealth may also potentially need monthly cash flow financing in fiscal 2015, following use of $1.2 billion of credit line draws for cash flow purposes in fiscal 2014. We could see some inflows of public-sector deposits to GDB in the coming months as a result of a proposed bill authorizing GDB to require certain public-sector entities to transfer their deposits, which are currently held at private local banks, to GDB.

The Commonwealth GO rating is also based on our view of:

  • The Commonwealth's substantial economy of 3.62 million people, whose gross product is centered on manufacturing, and the government sector contributing to significant employment. Tourism is a growing sector, although still a modest part of the overall economy, which we see as having weak economic trends that began in fiscal 2007, including population declines and economic contraction in real terms in every year except one since 2006;
  • Puerto Rico's strong ties to the U.S. economy, resulting in a significant flow of trade and income transfers;
  • Structural deficits in the Commonwealth's general fund for more than a decade;
  • Recent willingness to tackle long-term structural issues, as indicated by enactment of substantial pension reform, elimination of subsidies for the water and sewer authority, and large recent tax increases. The current administration just announced an intention to take additional mid-year actions to reduce the current-year deficit and to introduce a balanced budget in April for fiscal 2015, which would be the first balanced budget in many years;
  • The high level of debt and retirement liabilities; and
  • A governmental framework that constitutionally places repayment of GO debt ahead of other expenses, and broad legal authority to adjust revenues and expenditures.

We understand that the Commonwealth has sharply reduced its estimate of its  fiscal 2013 budget operating deficit from an initial $2.2 billion. The Commonwealth has budgeted for an $820 million operating deficit in fiscal  2014, or about 8% of budgetary expenses. However, the current administration has just announced an intention to take additional budget actions which would reduce the 2014 budget deficit by an additional $170 million, to a $650 million deficit, and also to pass a balanced budget for fiscal 2015. The 2014 operating deficit follows a long string of operating deficits for over a decade.

ECONOMIC PROFILE

We believe the economy is moderately diverse in terms of employment. While manufacturing represented 45.6% of GDP in 2012, it was only 9.0% of nonfarm employment. The largest nonfarm employment sector was government at 27.8%, followed by education and health at 12.6%. Net payments abroad accounted for approximately $31.6 billion (31.2% of GNP) in 2012, on a preliminary basis. According to the GDB, income transfers from the U.S. government to the Commonwealth total about 25% of Puerto Rico income. Non-farm wage and salary employment was down 4.2% as of November 2013 from a year earlier.

Recent economic news is mixed. The U.S. Bureau of Labor Statistics released preliminary data showing December 2013 total employment was down slightly, nonfarm wage and salary employment was up slightly, and the preliminary December unemployment rate had risen to 15.4%. The GDB economic activity index was up for three consecutive months through November 2013, although down year over year. On a yearly basis, the Commonwealth has suffered economic contraction for every year except one since 2006. Income levels are well below U.S. state averages, although good compared to some Caribbean island nations.
 
DEBT AND LIABILITIES

Deficit financing has been the primary reason for the recent increase in Puerto Rico's tax-supported debt levels in our view. We calculate that since 2009, the Commonwealth's tax-supported debt has risen by $12.7 billion, or 49.2% at fiscal end 2013. Our calculation of tax-supported debt includes $10.6 billion of GO debt, $4.0 billion of appropriation and tax-supported debt, $2.9 billion of pension bonds, $15.2 billion COFINA sales tax debt, and $5.6 billion of guaranteed debt, totaling $38.4 billion of total tax-supported debt at June 30, 2013. The majority of this increase ($8.9 billion) is attributable to debt issued by COFINA, whose corporate purpose was to fund the identified accumulated deficits through fiscal 2012, but whose authority to issue debt has just been expanded for fiscal 2014.

Our calculation of the Commonwealth's current tax-supported debt level of approximately $38.4 billion at fiscal year end June 30, 2013, or $10,635 per capita and 38% of GDP, are significantly higher than the median for the states of $1,036 per capita and 2.3% of gross state product. Total public sector debt is much larger, and includes $25.6 billion of revenue debt issued by the Commonwealth's public corporations and agencies (some of which previously received support from the general fund). This debt calculation does not include the potential for additional tax-backed debt expected to be sold shortly, or the pending expansion of a Commonwealth GO guarantee to GDB debt to $2.0 billion from $500 million.

Puerto Rico recently enacted various reforms to the Teachers Retirement System similar to the ERS reforms. This sparked a two-day teacher strike and a court stay of implementation while union litigation is resolved. Puerto Rico expects the Teachers Retirement System litigation to be resolved by the end of February, well before implementation of the important part of the legislation on July 1, which would be positive from a credit standpoint. The ERS reform significantly reduced future benefit disbursements, but requires a $140 million higher general fund contribution in fiscal 2014 and afterward to forestall much higher contributions that were projected by 2020 when the pension system would otherwise have exhausted its cash and reverted to a pay-as-you-go system. All active employees are now in a defined contribution retirement system

Combined, the employees, teachers, and judicial pension systems had what we consider a large unfunded actuarial liability of $37.0 billion, and a combined funded ratio of 8.4% at their June 30, 2012, actuarial valuation date. The ERS alone had a 4.5% funded ratio. The unfunded pension liability amounts to about $10,240 per capita. The Commonwealth's unfunded other postemployment liability is not as large, but also significant in our opinion at $2.9 billion, or about $809 per capita.

Based on the analytical factors we evaluate for U.S. states and territories, on a scale of '1.0' (strongest) to '4.0' (weakest), we have assigned a composite score of '3.2'. Based on our criteria, an overall score of '3.2' is associated with an indicative credit level in the 'BBB' category. Our criteria also specify overriding factors that may result in a rating different from the indicative credit level. In the case of the Commonwealth, we view the system support score, level of unfunded pension liabilities, liquidity, and market access as overriding factors that result in a rating below the indicative credit level.

CREDITWATCH

The ratings remain on CreditWatch with negative implications. The current pressures on funding access heighten our concern about the Commonwealth's overall liquidity profile and the timing and magnitude of potential contingent liquidity requirements that may develop. Our ratings reflect an expectation that either the Commonwealth or GDB will access the market in the near future, while the CreditWatch reflects the risk Puerto Rico may not be able to access the market in a manner to maintain sufficient liquidity on a timely basis. We would view a debt placement by either GDB or the Commonwealth sufficient to cover potential near-term liquidity and contingent risks, currently estimated around $1 billion or more, as an important credit stabilizing factor—the Commonwealth is currently contemplating a sizeable bond sale in the near future. The ratings could be further lowered if there is an inability to raise funding in the next few months or to otherwise improve cash flows. We expect to resolve or address the CreditWatch within the next couple of months.

 

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Tue, 02/04/2014 - 16:45 | 4401392 Grande Tetons
Grande Tetons's picture

Two non surpirses out of Puerto Rico

 

1. Junk Debt Rating

2. Ricky Martin being gay

Tue, 02/04/2014 - 16:48 | 4401402 Hippocratic Oaf
Hippocratic Oaf's picture

If its insured by Ambac, Nat Re or Assured GTY, buy it.

Ambac insured of 2019 trading near 10%

Tue, 02/04/2014 - 17:00 | 4401460 max2205
max2205's picture

Market says.....bullish.....john tell them what they won

Tue, 02/04/2014 - 17:06 | 4401505 kaiserhoff
kaiserhoff's picture

Porto Rico is junked?

Does that include Orlando???

Tue, 02/04/2014 - 17:20 | 4401556 wintermute
wintermute's picture

Last night on CNBC they were talking about Puerto Rico bonds being offered with 10% interest. Like this was a kind of opportunity, rather than another way to flush capital down the toilet.

The bunch of dumb f*ks couldn't even call this the last gasp attempt to keep their debt-ridden island afloat. No wonder main street has stopped listening to that crap channel.

Tue, 02/04/2014 - 17:22 | 4401587 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Bring it bitches. Time for collateral calls across the board. My shorts await!

Tue, 02/04/2014 - 21:32 | 4402327 Buck Johnson
Buck Johnson's picture

Exactly, offering 10% and thinking this is an opportunity is BS.  Trying to get suckers to keep the game going for a little while longer isn't working.  That Island is going to implode and it will be a headache for us in the US just watch.

Wed, 02/05/2014 - 05:12 | 4403137 Archduke
Archduke's picture

rubbish: Puerto Rico tax increase? well perhaps only for the poor

Puerto Richo just scrapped its taxes in its bid to tax havendom.

 

This smells like it is organised scheme to inflate private bank and

hedge fund coffers at the expense of a public US bailout.  note that

all capital gains tax were dropped for earnings made strictly within

the commonwealth: consequence: an explosion of offshore funds,

debt, and a need to inject massive amounts of liquidity to cover.

 

 

http://taxfoundation.org/blog/puerto-rico-new-tax-haven

 

http://www.npr.org/2013/06/28/195152925/puerto-rico-rolling-out-the-welc...

 

Tue, 02/04/2014 - 17:02 | 4401461 knukles
knukles's picture

Another example of the Quintessential Progressive Society's Blessings Upon Mankind

Everything's free in a land of redistributive abject poverty and illiteracy


Tue, 02/04/2014 - 17:03 | 4401484 Occident Mortal
Occident Mortal's picture

2014 is the year the Chinese de-Americanization agenda gains global support.

Tue, 02/04/2014 - 18:52 | 4401862 Stoploss
Stoploss's picture

"MAY BE CUT FURTHER"   How much??

What's after junk, other than default?

Nevermind...

Tue, 02/04/2014 - 16:53 | 4401421 LFMayor
LFMayor's picture

No shit man.  Can't Menudo do a benefit gala or something?

They have to sell all those cherry Chevy II's to cover the note. 

Tue, 02/04/2014 - 16:56 | 4401422 LFMayor
LFMayor's picture

The Power of Christ compels you!
Begone double post and return no more.

Tue, 02/04/2014 - 17:08 | 4401517 GolfHatesMe
GolfHatesMe's picture

Can't they blame the weather?

Tue, 02/04/2014 - 17:26 | 4401608 fooshorter
fooshorter's picture

Isnt P.R. in fema region 1? Wasn't their a huge build of assets in the area for the previous year or so? Probably coincidence.

Tue, 02/04/2014 - 17:04 | 4401393 TruthInSunshine
TruthInSunshine's picture

I'm a leeetle bit Deetroit...

And I'm a leeetle bit Compton or Stockton roll...

Tue, 02/04/2014 - 18:06 | 4401716 Freddie
Freddie's picture

LOL!  My buddy as a kid used to go on cruise ships with his parents before they became gigantic ships of the damned.   He had been to all the islands and said Puerto Rico is a shithole and the US VI is dangerous as hell.  Sort of like Newark with palm trees.  Ditto Jamacia.

Tue, 02/04/2014 - 20:38 | 4402164 Nobody For President
Nobody For President's picture

Greenie for Freddie for  'Newark with palm trees.'

Tue, 02/04/2014 - 16:48 | 4401394 HyBrasilian
HyBrasilian's picture

Everything's FREE in AMERIKA [for a small fee in AMERIKA]

Tue, 02/04/2014 - 16:55 | 4401426 EscapeKey
EscapeKey's picture

so is your mom

Tue, 02/04/2014 - 17:21 | 4401589 HyBrasilian
HyBrasilian's picture

but not YOURS [I gather]?

Tue, 02/04/2014 - 18:26 | 4401787 cougar_w
cougar_w's picture

Burn!

Tue, 02/04/2014 - 16:47 | 4401396 ziggy59
ziggy59's picture

So , if they lower than 'junk' status, is P.R. Same as U.S.?

Tue, 02/04/2014 - 16:46 | 4401400 vote_libertaria...
vote_libertarian_party's picture

but...but....their guv and treasurer were on TV last week saying 'things' were in progress to fix this.

 

There was somebody on the Fox Bus Network 3 hours ago saying buy buy buy these bonds.

Tue, 02/04/2014 - 16:49 | 4401405 Fidel Sarcastro
Fidel Sarcastro's picture

Puerto Rican bail out by Obozo in 5...4...3...2...

Tue, 02/04/2014 - 21:46 | 4402377 nightshiftsucks
nightshiftsucks's picture

wow,just wow.Fucking criminals.

Tue, 02/04/2014 - 17:09 | 4401514 Deacon Frost
Deacon Frost's picture

Puerto Rico will be bailed out also behind the scenes, just like California and Illinois. The Fed will purchase these bonds.

The Federal Reserve can lend to Puerto Rico under Federal Reserve Act,

Section 14 (2)b1, which says:

To buy and sell, at home or abroad, bonds and notes of the United States…issued in anticipation of the collection of taxes or in anticipation of the receipt of assured revenues by…, a foreign government or agency thereof…

Section 14 (2)b2 says that if bonds are guaranteed by the U.S. Treasury, the Fed can buy them at any maturity…

Tue, 02/04/2014 - 17:27 | 4401610 Toolshed
Toolshed's picture

"According to the GDB, income transfers from the U.S. government to the Commonwealth total about 25% of Puerto Rico income."

You're too late. The US is already bailing them out. I read a few years ago that PR was the largest recipient per capita of social security and a huge source of ss fraud. Fuck Puerto Rico. Although, they do have gorgeous women there. Maybe they could make some money in the hot babe market. I am definitely a buyer.

Tue, 02/04/2014 - 19:01 | 4401889 Deacon Frost
Deacon Frost's picture

Very good points, I concur

Tue, 02/04/2014 - 20:40 | 4402170 Nobody For President
Nobody For President's picture

Long Puerto Rico babes - got it!

Tue, 02/04/2014 - 16:49 | 4401406 NoDebt
NoDebt's picture

"it is unclear if a junk rating forces (by mandate) funds to cover"

Depends on the fund's prospectus or an institution's investment policy, I would think.  I'll bet many have to, though.

So which muni bond insurer is holding the biggest bag on this little tropical paradise's banged-up bonds?


Tue, 02/04/2014 - 16:51 | 4401414 DavrosoftheDaleks
DavrosoftheDaleks's picture

ishares MUB got pretty smoked.

Tue, 02/04/2014 - 16:56 | 4401441 Hippocratic Oaf
Hippocratic Oaf's picture

Nat Re 5.19B

Assd Gty 5.7B

Ambac 2.53B

Syncora2.29B

All told 16-17B

Tue, 02/04/2014 - 17:25 | 4401596 NoDebt
NoDebt's picture

Good info.  Thanks, H.O.

Tue, 02/04/2014 - 16:51 | 4401408 DavrosoftheDaleks
DavrosoftheDaleks's picture

Is this actually going to hurt PR?  They've been the beneficiary of easy money for a while and probably will still be.  All the sucker fund managers looking for yields are the losers.  PR poli's are laughing at their bank on the beach right now.

Tue, 02/04/2014 - 16:58 | 4401446 fonzannoon
fonzannoon's picture

It's going to hurt anyone that took advice from a bank and ended up a muppet. Apparently it still happens.

http://www.forbes.com/sites/jakezamansky/2014/02/04/ubs-drops-first-shoe...

Tue, 02/04/2014 - 20:47 | 4402177 Emergency Ward
Emergency Ward's picture

"UBS Financial Services Incorporated of Puerto Rico
earns a sales load of 4.75% on the initial offering of
affiliated Puerto Rico closed-end funds and a portion
of the sales load is paid to your Financial Advisor."

"Your Financial Advisor and the trading desk may
earn compensation in connection with secondary
market transactions you make through UBS Financial
Services Incorporated of Puerto Rico. We may charge
up to 3.5% on your purchase (a “mark up”), and up
to 1.5% on a sale (a “mark down”). A portion
of the mark up or mark down may be paid to the
UBS Financial Services Incorporated of Puerto Rico
Trading Desk and all or a portion may be paid to
your Financial Advisor."

-- from UBS literature on their Puerto Rico funds.  You can see that raping clients going in and going out was a lucrative pastime for UBS.

Tue, 02/04/2014 - 20:56 | 4402216 Emergency Ward
Emergency Ward's picture

Another Forbes article about the same:

"In addition to having risky credit and being based on a concentration of Puerto Rican securities, investors have now learned that UBS leveraged the funds by over 53% which, when they declined in value, exacerbated the problem."

 

http://www.forbes.com/sites/jakezamansky/2013/10/07/created-by-ubs-muni-...

Tue, 02/04/2014 - 16:50 | 4401410 Seasmoke
Seasmoke's picture

Ricans have never been good with finances. 

Tue, 02/04/2014 - 19:55 | 4402051 Winston Churchill
Winston Churchill's picture

Not true.

All those pimps drive nice motors.

Tue, 02/04/2014 - 16:52 | 4401412 youngman
youngman's picture

I just met a girl named S&P.........

Tue, 02/04/2014 - 20:43 | 4402174 Nobody For President
Nobody For President's picture

She'll break your heart,

Just wait and see...

Tue, 02/04/2014 - 16:54 | 4401413 29.5 hours
29.5 hours's picture

 

 

Reading across the sites, this S&P downgrade seems to be a surprise to the MSM. Time will tell how this will affect bond funds but it certainly can not help. Some insurers got to be howling a bit...

 

 

Tue, 02/04/2014 - 16:51 | 4401416 ParkAveFlasher
ParkAveFlasher's picture

For those of you wishing for the final downfall of NYC, give thanks, for I bring you White Flight part deux, The Return of the Ghetto Puerto Rican.  Time to break out the tasteless joke books again!

Tue, 02/04/2014 - 16:54 | 4401429 LFMayor
LFMayor's picture

Don Rickles Inc. stocks just went up. 

Tue, 02/04/2014 - 17:19 | 4401569 ParkAveFlasher
ParkAveFlasher's picture

Que Viva Jackie Mason!  Oo!

Tue, 02/04/2014 - 16:53 | 4401424 larry david
larry david's picture

Justice department investigation in 3, 2, 1...

 

Anyone else watching this farce of a market? SPY was plunging then suddenly popped up by like .70 in about 45 seconds. Free markets, fair markets!

Tue, 02/04/2014 - 16:55 | 4401434 Ness.
Ness.'s picture

USD/JPY = S&P

 

End of lesson.

Tue, 02/04/2014 - 16:54 | 4401428 saltedGold
saltedGold's picture

Great time as any to finally make P R the 51st state!!

 

/sarc (just in case)

Tue, 02/04/2014 - 16:59 | 4401451 sixsigma cygnus...
sixsigma cygnusatratus's picture

58th state...

Tue, 02/04/2014 - 16:57 | 4401438 Zymurguy
Zymurguy's picture

This can only mean one thing... credit event.

That is unless the banking cartels huddle up and change the rules (which they are probably heavily engaged in at this very moment)

Tue, 02/04/2014 - 16:57 | 4401447 Kaiser Sousa
Kaiser Sousa's picture

nothing says recovery like the inevitable default of another broke ass part of the US.....

 

Tue, 02/04/2014 - 16:59 | 4401452 bigrooster
bigrooster's picture

And yet the US which has over twice the debt per capita is still an A whatever rating...

Tue, 02/04/2014 - 16:58 | 4401456 Lendo
Lendo's picture

Chicago, you're next!

Tue, 02/04/2014 - 17:00 | 4401466 Fidel Sarcastro
Fidel Sarcastro's picture

Yes, its mayor wants to float ANOTHER $900 million in bonds to pay bills.

Tue, 02/04/2014 - 17:07 | 4401511 NOTaREALmerican
NOTaREALmerican's picture

If it's less than a Bee, it doesn't even count as a loan anymore.   

Tue, 02/04/2014 - 17:11 | 4401470 Cacete de Ouro
Cacete de Ouro's picture

I was always jealous of those American newspaper guys in Purto Rico in Hunter S Thompson's 'The Rum Diary'.

They seemed to have a right good time...

Tue, 02/04/2014 - 17:06 | 4401471 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Suddenly, Puerto Rico...es no rico.

Tue, 02/04/2014 - 17:02 | 4401473 hugovanderbubble
hugovanderbubble's picture

Banco Santander will suffer a bit with Latam Risk on...and Puerto Rico Exposure...

Tue, 02/04/2014 - 17:05 | 4401492 NOTaREALmerican
NOTaREALmerican's picture

Nothing another loan won't solve.

Tue, 02/04/2014 - 17:06 | 4401497 ncdirtdigger
ncdirtdigger's picture

Screw the bondholders and let the unions take control of PRico, ala GM.

Tue, 02/04/2014 - 17:05 | 4401503 hugovanderbubble
hugovanderbubble's picture

California is next

Munibonds= Credit Event

Tue, 02/04/2014 - 17:18 | 4401562 STP
STP's picture

Yep, I was just reading through the report and it sounds a lot like Kalifornia, with it's union controlled Government. 

Tue, 02/04/2014 - 17:11 | 4401522 Millivanilli
Millivanilli's picture

All they need to do is bundle this debt into some type of SIV or synthetic cdo, and sell it to teachers pension funds in the US as a no brainer.

 

Oh, wait.

Tue, 02/04/2014 - 17:19 | 4401570 STP
STP's picture

If you buy the lower tranches, you get a free six pack of toilet paper.

Tue, 02/04/2014 - 17:11 | 4401524 magpie
magpie's picture

Das ist der Juden fault.

Tue, 02/04/2014 - 17:21 | 4401582 kaiserhoff
kaiserhoff's picture

Juden fartzen machen.

Tue, 02/04/2014 - 17:20 | 4401572 Blast_Bug
Blast_Bug's picture

Blame it on the WEATHER!

Tue, 02/04/2014 - 17:30 | 4401614 seek
seek's picture

I'm pretty sure this was one of Kyle Bass' trades from a few months ago -- there was a video linked here where he discussed how ridiculous it was that they weren't junk. I wonder how much he made today?

Edit: http://www.cnbc.com/id/101099110

 

Tue, 02/04/2014 - 17:30 | 4401618 Alien 851
Alien 851's picture

..sell bonds to pay maturing bonds...sold to pay prior maturing bonds..sold to pay high gov spending.   Hey it worked for Detriot!!!...well sorta ...nah, forget it.

Tue, 02/04/2014 - 17:41 | 4401655 pashley1411
pashley1411's picture

Its no joke, people should consider scenarios where government labor unions cut bondholders out of the loop.

PR goes to its fundamental role (as will all governments) to a mere transfer vehicle of taxpayer money to supporters of the administration.

Tue, 02/04/2014 - 19:09 | 4401916 Son of Loki
Son of Loki's picture

If the law suits are held in PR courts, the bondholders don't stand a chance of winning there.

I suspect the Fed will bail them out like AIG, namely in reality to bail out mutual funds who hold the bonds.

Tue, 02/04/2014 - 17:49 | 4401677 Zynga
Zynga's picture

Puerto Rico Bonos Basura?

Tue, 02/04/2014 - 17:55 | 4401694 BanksterSlayer
BanksterSlayer's picture

Puerto Rico is Not America. Oh wait ...

 

West Side Story clip:

"Puerto Rico is in America now. We still have nothing, only more expensive."

http://youtu.be/4B1IjqiMQJ0

 

Tue, 02/04/2014 - 18:07 | 4401730 RaceToTheBottom
RaceToTheBottom's picture

I would have thought the 1%'ers would have loved to pump money into PR.  I guess they just want a better deal.

Tue, 02/04/2014 - 18:43 | 4401840 Judge Crater
Judge Crater's picture

"If you want your Puerto Rican junk bonds, you can keep your Puerto Rican junk bonds."

Tue, 02/04/2014 - 18:43 | 4401841 MeBizarro
MeBizarro's picture

Joke: 'Why don't you see any Puerto Ricans on Star Trek?'

Answer: 'Because they don't work in the future either!'

Tue, 02/04/2014 - 18:59 | 4401886 Son of Loki
Son of Loki's picture
Could a Puerto Rico Default Hammer the $3.7 Trillion U.S. Muni Bond Market in 2014?

 

Puerto Rico, a mere rectangle 100 miles long by 35 miles wide, the smallest and most eastern island of the Greater Antilles, is the 3rd largest municipal bond issuer after California and New York. That is a mind-blowing statistic. But Puerto Rican bonds are free from all State, Federal and local taxes, a very attractive investment for US investors with a thirst for yield.  This is one side effect of low interest rates and quantitative easing coming out of the Federal Reserve; American investors have become this island’s great enabler from the north.  Similar to 2007, when investors were reaching for yield in toxic subprime mortgage CDOs, today this song is playing again.  This time in Spanish.  A colossal reach for yield has enabled politicians in Puerto Rico to run up a dangerous bill, and the music is about to stop.


http://www.forbes.com/sites/larrymcdonald/2014/01/03/puerto-rico-default...

Tue, 02/04/2014 - 20:59 | 4402221 Nobody For President
Nobody For President's picture

I'll be damned - I thought that quote was from Zero Hedge...

Tue, 02/04/2014 - 21:04 | 4402239 kaiserhoff
kaiserhoff's picture

HO-LY SHIT,  WHO KNEW?

Las putas del mundo.

Tue, 02/04/2014 - 19:29 | 4401970 Paracelsus
Paracelsus's picture

Wasn't Loreena Bobbitt from PR? She takes a knife to her husbands willie.

Puerto Rico takes a knife to Wall Streets' willie and ghoulies.

With PR Bonds or excitable PR women,wear the titanium jockstrap to bed,sine qua non.

Tue, 02/04/2014 - 21:04 | 4402233 Balanced Integer
Balanced Integer's picture

She was from Ecuador. I know because I was dating another girl from Ecuador at the time. Looking back, I'm just glad that she didn't love my junk enough to want to carry it around with her in her purse.

Tue, 02/04/2014 - 20:28 | 4402100 Emergency Ward
Emergency Ward's picture

"No quiero morir alejado de ti, Puerto Rico del alma...."

https://www.youtube.com/watch?v=PC1B1n5C174

-- Javier Solis, "En mi viejo San Juan".  Los Panchos also do a fine version of this classic....they also do a version together with Javier Solis.

 

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