Here Comes "Prexit": Puerto Rico In "Death Spiral", Debts Are "Not Payable", Governor Refuses To "Kick The Can"

Tyler Durden's picture

As we noted last night, for a whole lot of time nothing at all can happen under the guise of "containment"... and then everything happens all at once. Because not even two full days after Greece activated the "Grexit" emergency protocol, leading to capital controls, and a frozen banking system and stock market, moments ago the NYT reported that the default wave has jumped the Atlantic and has hit Puerto Rico whose governor Alejandro García Padilla, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.

In other words, first Greece, and now Puerto Rico may be in a state of Schrodingerian default. Why the ambiguity? Because while Greece is not technically in default until July 1, Puerto Rico does not even have an option to declare outright default. But that doesn't mean that the commonwealth will service it.  Quoted by the NYT, García Padilla said "The debt is not payable." He added that "there is no other option. I would love to have an easier option. This is not politics, this is math.

Funny: math went out the window in 2009 when central bank "faith" took over. The problem is that faith has run out, as has the "political capital" to keep an insolvent global system running, and first Greece now Puerto Rico are finally realizing it.

As the NYT adds, this is "a startling admission from the governor of an island of 3.6 million people, which has piled on more municipal bond debt per capita than any American state."


A broad restructuring by Puerto Rico sets the stage for an unprecedented test of the United States municipal bond market, which cities and states rely on to pay for their most basic needs, like road construction and public hospitals.


That market has already been shaken by municipal bankruptcies in Detroit; Stockton, Calif.; and elsewhere, which undercut assumptions that local governments in the United States would always pay back their debt.

The immediate implication, as accurately presented by the NYT, is that Puerto Rico's call for debt relief on such a vast scale could raise borrowing costs for other local governments as investors become more wary of lending. Indicatively, Puerto Rico’s bonds have a face value roughly eight times that of Detroit’s bonds.

What is worse for the illusions that is US "capital markets" is that virtually all the same hedge funds who are long Greece on hopes of some central bank bailout, are also long Puerto Rico. As such, while tomorrow most will be spared...

... some of the most "respected" US hedge funds will suffer a gruesome bloodbath.

What happens next is unclear: "Puerto Rico, as a commonwealth, does not have the option of bankruptcy. A default on its debts would most likely leave the island, its creditors and its residents in a legal and financial limbo that, like the debt crisis in Greece, could take years to sort out."

So without the "luxury" of default, what is PR to do? Why petition to be allowed to file Chapter 9 naturally: after all everyone is doing it.

In Washington, the García Padilla administration has been pushing for a bill that would allow the island’s public corporations, like its electrical power authority and water agency, to declare bankruptcy. Of Puerto Rico’s $72 billion in bonds, roughly $25 billion were issued by the public corporations.


Some officials and advisers say Congress needs to go further and permit Puerto Rico’s central government to file for bankruptcy — or risk chaos.


“There are way too many creditors and way too many kinds of debt,” Mr. Rhodes said in an interview. “They need Chapter 9 for the whole commonwealth.”

García Padilla said that his government could not continue to borrow money to address budget deficits while asking its residents, already struggling with high rates of poverty and crime, to shoulder most of the burden through tax increases and pension cuts. Where have we heard that before...

He said creditors must now “share the sacrifices” that he has imposed on the island’s residents.


“If they don’t come to the table, it will be bad for them,” said Mr. García Padilla, who plans to speak about the fiscal crisis in a televised address to Puerto Rico residents on Monday evening. “What will happen is that our economy will get into a worse situation and we’ll have less money to pay them. They will be shooting themselves in the foot.”

And the punchline:

“My administration is doing everything not to default,” Mr. García Padilla said. “But we have to make the economy grow,” he added. “If not, we will be in a death spiral.”

And this one: any deal with hedge funds, who are desperate to inject more capital in PR so they can avoid writing down their bond exposure in case of a default, "would only postpone Puerto Rico’s inevitable reckoning. “It will kick the can,” Mr. García Padilla said. “I am not kicking the can.”

We wonder how long before Tsipras, who earlier was quoting FDR, steals this line too.

And speaking of Prexit, how long before Puerto Rico exits the Dollarzone... and will there be a Preferendum first or will the governor, in his can kick-less stampede, just make a unilateral decision to join Greece, Ukraine, Venezuela and countless other soon to be broke countries in the twilight zone of Keynesian sovereign failures?

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HonkyShogun's picture
HonkyShogun (not verified) Jun 28, 2015 8:58 PM

LMAO @ the NWO "elites" watching shit crumble.

TeamDepends's picture

OK "Rich Port", if you don't want to play there will be an "asteroid" headed your way.

rubiconsolutions's picture

Perhaps Puerto Rico can align itself with a financially sound country that has a robust economy. Oh, wait. Oops.

NoDebt's picture

"Kick those worthless Puerto Ricans out of the Union!"

I just wanted to get that in before somebody else stole it.

knukles's picture

Hot boogers!  MOAR Good News!
Now, I ask you, just how much will Obie-won throw at the PR vote?
Huh huh huh huh huh?

              So comforting that everything's A-OK Hunkie Dorrey!

                        NoDebt:  You left off the "Bitchez"

Stuck on Zero's picture

Puerto Rico has one of the highest AIDS rates in the world.  Now they have one of the highest debt to population ratios. What will they go for next?

ThroxxOfVron's picture

"What will they go for next? "


Largest ethnic group representation on waiting lists for rent controlled apartments in NYC.


Soul Glow's picture

A LOT of people in the US own Puerto Rican bonds.


Anusocracy's picture

Just another canary in the cornhole.

TruthInSunshine's picture

Detroit had 18 billion in liabilities when it declared municipal bankruptcy.

Puerto Rico is Detroit x 4, and no, they are no more able to print their own currency than Detroit or Greece in an effort to technically pay creditors in debased currency (since they use the Fed Reserve Fiat Paper).

We're going to see China, Spain, Greece, Portugal, Japan, Italy, France, possibly South Korea and some smaller players all tip into deep recession or even depression this year, with China + Japan kickstarting the next global economic crisis in a massively leveraged, collateralized by increasingly meaningless fiat paper and derivatives thereof, world.

Dolar in a vortex's picture

I booked airline tix last night for PR in August.

Why did i not know this earlier? I'm not a stranger to ZH.

HardlyZero's picture

So...PR gets their bankrupt financed before Greece. 

Will there be a race to the Xexits, like Portugal, Spain, Italy ?

Which country will next go Bankrupt ?

USisCorrupt's picture

Look for a RUN on the PHYSICAL Precious Metal's Market, that will be the run that matters.


The FED's put out a terror alert for the US for the coming July 4th Holiday. They should know for they will be the ones who will be the one's who are doing the dirty deed.

Luc X. Ifer's picture

last week got news from all my friends working in IT departments for financial institutions all over the world that they got directives to prepare to be able to face a shitstorm of epical proportions. it was expected and if you think it wasn't u r just a plain ignorant retarted ass.

fancyfree's picture

The shitstorm of epical proportions is simply the switch to real assets and the rule of law, as the Network of Global Corporate Control  

comes under receivership in the Global Debt Facility.    The coalition for the rule of law is now in charge.  The dirty deed is Zerohedge and you trying to scare everybody.  We know who is in charge, and it's us, not the 1% ers.

Shawnee's picture

I thought those were gerbils

SFopolis's picture

I'm going to start to use the "...canary in the cornhole" line.  Good one.


ThroxxOfVron's picture

I think some stagehands I know are going to get a big surprise when they open their Mass Mutual annuity packet next month...

disabledvet's picture

Talk about "hoovering up dollars."

Plus the Fed is still on track to raise rates this fall.

This could start slamming into all sorts of muni classes of debt inside the USA itself.

Yet again...

Nobody For President's picture

The Feds are NOT gonna raise rates this Fall, September, October, fucking never.

Get over it. It is total sound bite bullshit.


Ain'[t gonna happen. Political theater only. 

StychoKiller's picture

Is that the lower-left corner of the "Swirly-gram?"

Abitdodgie's picture

Did you know that EVERY American has a Corporation registered in Puerto Rico. Well you most likely did not if you had you would of taken possestion of it.

ThroxxOfVron's picture

"Did you know that EVERY American has a Corporation registered in Puerto Rico. "


An interesting assertion.  Link to information, please.

PirateOfBaltimore's picture

Is that like everyone having a cousin in Miami? 


Oh wait, wrong bankrupt island.

Save_America1st's picture

exactly...obama will send ships down there and bring all 3 million of them into the country.  We already pay for everything they have and they pay no income taxes to the feds...he'll make them the 51st state and register every single one of them to vote for the fucking D's.  They'll think they hit the fucking lottery jackpot, but they'll just be added to the slave pool just like all the rest.   

TheSecondLaw's picture

Make that the 52nd state.  Israel is the 51st.

HowdyDoody's picture

Make that the 52nd state.  Israel is the 1st.



spiral galaxy's picture

Re: Obama's saving ships  ..........with Captain Boehner at the ship's wheel and 1st mate Roberts hoisting the Rainbow flag!??!  Yes, it will be glorious.  However, given both suffering from navigation and  sense of political direction disability, it'll be a hard left out of the PR ports and across the Atlantic blue to safe havens of the Middle East!!  Bon voyage El Capitan!!!

Larry Dallas's picture

Cockroaches. Never ever visit or be in Manhattan on the first weekend of June. Ever.

Its_the_economy_stupid's picture

The June PR parade is a skin fest  of the highest order.

HowdyDoody's picture

I didn't know people working in Public Relations went on parade. That seems a bit - radical - for that sort of person.


Savyindallas's picture

maybe gay marriage will slow down these promiscuous homos. Probably not, but it will be a boon for divorce lawyers. They'll get rich. 

Chandos's picture

As long as they have gay mariage they'll be a l l right.....

Wahooo's picture

Oh, but it's Bush's fault my friend, Bush's fault.

Anusocracy's picture

Everybody in government and every government lover's fault.

I hope the dupes of the world are on the short list for extinction.

Mentaliusanything's picture

Which Bush,... Hue Due or Lue (I never trusted Lue)

ThroxxOfVron's picture

"Kick those worthless Puerto Ricans out of the Union!"

I just wanted to get that in before somebody else stole it. "


SHUT UP Wolfnodebtl !


( hee hee hee hee )


NoDebt's picture

It does sort of make you wonder if PR is more a part of the US than Greece is a part of the Euro/EU.

If you see the US government smashing PR over the head with "cash for reforms" demands, you know there is no such thing as the United States.  Which would be sad.  Except for Texas, which should have given the middle finger to the rest of the union quite some time ago (and might see such a situation as the perfect reason to do so).


ThroxxOfVron's picture

How can a bailout be spun as saving the pensions of our beloved hard working IRS and TSA employees?


Or, maybe they've been watching and learning from the Greek drama and are talking to the Russians about a deep water port or ng pipeline to Cuba?

sun tzu's picture

I believe TX tried to leave in 1861 and it didn't turn out too well

TuPhat's picture

We didn't want to leave.  We just like to fight.

marathonman's picture

Yep, Texas and the rest of the South is still occupied territory.

NoPension's picture

Jennifer Lopez has on of the finest asses I've ever laid eyes upon.
Does THAT count for anything?

flyingcaveman's picture

Might have to double-ly seasonally adjust that ass.