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Puerto Rico Is About To Default: Your Complete Guide To An Island Debt Debacle
Last week, we brought you the latest from Puerto Rico’s debt debacle. The commonwealth is desperately trying to restructure some $72 billion in debt while staring down a $354 million bond payment due on December 1.
As we discussed at length on Friday, some $270 million of what’s due next week is GO debt guaranteed by the National Public Finance Guarantee Corp. Defaulting on that is bad news and as Moody’s warned earlier this month, a missed payment on the commonwealth’s highest priority obligations “would likely trigger legal action from creditors, commencing a potentially drawn-out process absent swift federal intervention.”
Make no mistake, federal intervention is likely to be anything but “swift.”
A Senate judiciary committee headed by Iowa Republican Charles Grassley will meet on December 1 to discuss a legislative proposal to assist the Padilla government, but it’s hard to imagine that a decision will be made in time to avert at least a partial default.
Ultimately, the decision will be between paying bondholders and ensuring that the government can continue to provide public services, and just as Greece prioritized pensions over IMF payments last summer, Padilla isn’t likely to sacrifice the public interest at the altar of the island’s debtors.
So, as the clock ticks, we bring you the following helpful guide courtesy of Bloomberg who has made a “list of the island’s debt, how much is outstanding, when major monthly payments are due, and the source of funds that back the securities.”
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- Puerto Rico Sales Tax Financing Corp.: $15.2 billion. The bonds, known by the Spanish acronym Cofinas, are repaid from dedicated sales-tax revenue. A $6.2 billion portion of the debt, called senior-lien, is repaid first. The remaining $9 billion, called subordinate-lien, get second dibs. $1.2 million of interest is due in February and again in May. Senior Cofinas maturing in 2040 last traded for an average yield of 9.5 percent, while subordinate ones yielded 18 percent.
- General-obligations: $12.6 billion. The debt backed by the commonwealth’s full faith and credit. The island’s constitution says general obligations must be repaid before other expenses. Puerto Rico owes $357 million of interest in January and an additional $805 million of principal and interest is due July 1. Securities due in 2035 last traded for an average yield of 11.5 percent.
- Puerto Rico Electric Power Authority: $8.2 billion. Prepa, as it’s called, is the island’s main supplier of electricity and repays the debt from what it charges customers. The utility owes $196 million of interest in January and $420 million of principal and interest July 1. Prepa is negotiating with bond-insurance companies after reaching an agreement with some of its bondholders, who agreed to take a 15 percent loss. Bonds maturing in 2040 last traded at an average yield of 9.2 percent.
- Puerto Rico Government Development Bank: $5.1 billion. The GDB lends to the commonwealth and its localities. When those loans are repaid, the bank can pay off its debt. The bank owes $354 million in December and $422 million in May. Federally taxable bonds maturing in 2019 last traded for an average yield of 57 percent.
- Puerto Rico Highways & Transportation Authority: $4.6 billion. The highway agency repays its debt with gas-tax revenue. It owes $106 million of interest in January and $220.7 million of principal and interest in July. The commonwealth has the ability to divert revenue that cover some highway bonds to pay its general-obligation securities, if there are no other available resources, according to the island’s most recent financial disclosure. Bonds maturing July 2028 last traded for an average yield of 32 percent.
- Puerto Rico Public Buildings Authority: $4.1 billion. The PBA bonds are repaid with lease revenue that public agencies pay for their office buildings. The agency owes $102.4 million of interest in January and $208 million of principal and interest in July. Bonds maturing 2042 last traded for an average yield of 10.4 percent.
- Puerto Rico Aqueduct & Sewer Authority: $4.1 billion. The utility, called Prasa, supplies most of the island’s water. The debt is repaid from water rates charged to customers. The water agency owes $86.5 million of interest in January and $135.1 million of principal and interest in July. Bonds maturing in 2042 last traded at an average yield of 8.7 percent.
- Puerto Rico Pension-Obligation Bonds: $2.9 billion. The taxable debt was sold to bolster the island’s nearly depleted pension fund. The bonds are repaid from contributions that the commonwealth and municipalities make to the retirement system. The system pays $13.9 million of interest every month in this budget year. Securities maturing in 2038 last traded for an average yield of 22 percent.
- Puerto Rico Infrastructure Financing Authority: $1.9 billion. Called Prifa, the agency has sold the island’s rum-tax bonds. These are securities repaid from federal excise taxes on rum made in Puerto Rico. Prifa owes $37.2 million of interest in January and $77.8 million of principal and interest in July. Bonds maturing in 2046 last traded for an average yield of 28 percent.
- Puerto Rico Public Finance Corp.: $1.09 billion. The bonds are repaid with money appropriated by the legislature. The agency has defaulted every month since August on its debt-service payments because lawmakers failed to allocate the funds. It owes interest every month, the largest being a $24 million payment in February. Bond maturing in 2031 last traded for 7 cents on the dollar, according to trade reports. The yield wasn’t disclosed.
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As a reminder, Puerto Rico's Treasury Single Account likely has negative cash balance, which, according to Height Securities analyst Daniel Hanson, "will make it 'nearly impossible' to meet all government payroll obligations over the next six weeks."
In other words, even if the government does default in order to save money for the provision of public services, social unrest may now be unavoidable.
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Looks like the 2016 Puerto Rican Day Parade in NYC will be the BIGGEST EVAH!
Good candidate for a critical mass default.
Pay those banksters their graft and make your people suffer. That's the motto of our statesmen today.
<----Bondholders will re-negotiate the debt.
<----They will let PR default
You should always default before re-negotiations...
They wil not be getting a bailout. The fedgov didn't bail out Detroit, I highly doubt they will bail out PR. If they do, Illinois will be standing in Washington, hat in hand, begging for some free money for their pension find, as will many others. Only the banks have the clout to get bailed out....
In reality, defaulting and walking away from the US all together is the smartest thing they could do. The problem there is that while this would be better for the young people there, over the long haul, all the old ones are hooked on the free shit and won't allow this to happen. If that sounds kinda familiar, it's because that's exactly what's going on up here.
Yeeeyy. This means more sex slaves and house pets. Maybe even the coons/spiks/chinks will afford one.
Let the multicultural celebration begin:
http://goo.gl/9IEbDI
I want to travel to Puerto Rico. The only thing holding me back is that I hear the place is crawling with Puerto Ricans.
Well, it works like this JS: if you borrow money from people, they expect you to pay it back. IN fact, they expect you pay back slightly more than you borrowed. Otherwise there is no reason fo rthem to loan you jack in the first place.
Obviously. I don't know why this simple fact is so hard for some people to get.
Maybe lenders had some other motives behind those loans? Who in their right mind would ever buy such shoddy debt products?
I feel for the poor schmuck that for some weird reason viewed the government as a credible borrower and bought those bonds. They should have to pay a stupid tax. The bankers holding that debt, which I am certain is the majority of it; need to have their feet held to the fire on this. I'm not going to hold my breath.
Accountability for the banksters? Not in my lifetime!
They used to expect you to pay it back. Perhaps not so much anymore.
Bankruptcy, bailouts, writeoffs, insurance, cronyism, and judgment proof legal protections -- among other things -- have changed the landscape.
For example, for how many years have zero money down borrowers been living in their homes without paying on their mortgages?
If you are legally judgment proof (i.e., a money judgment cannot be enforced against you), the lender must look elsewhere. Some would be surprised at the exemptions (protections) each state provides for those facing money judgments. Florida is particularly generous, allowing principal residences to be shielded.
As debtors become more aware of these protections, the larger picture and arguably the culture itself changes.
Yo, they're rich, they OWE everybody Munny!
Micro study of what's to come further north.
+Infinity, 005
Maybe we can send all of the CA refugees over to PR?? It's warm, they have a non-functioning economy and govermnet, it's by the beach, it's got palm trees, lots of good black and gang culture, lots of crime and stupid gun laws. Seems like the perfect place for them. Let's petition Jerry Brown. Would be a positive thing for the Union if we did.
Oh you you want to leave CA, the state that you helped ruin, sure buddy, no problem. Step right on this plane over here for a one way trip to PR, you'll love it. I hope you can swim because that's the only way you get back to the states. Enjoy the tripe, they have great ethic food - you'll love the culture. It's to die for.
As long as they don't come to Central Florida. We have more than our share.
Hey we all have to do our fair share with our CA refugees, it's the American thing to do! Obama the ape told us so.
How about some Syrian refugees there are plenty of them and they love guns, they will fit right in. They love making their own Jam too.
Now we need to pay for cockroaches. Watch the emigration commence this spring.
Grant Puerto Rico independence, STOP FREELOADING ON US TAXPAYERS!!
"No CDS or any other derviatives that might cause a cascading problem for the ponzi financial system will be affected."
Sincerely,
ISDA
No, a Puerto Rican GO Bond default is not a credit event. They have plenty of credit...so it's not a default event.
Why do all Puerto Rican chicks looks like $20 hookers? (At least the ones they usually post here anyway) I need a few beers, then I'll look at her again.
Those chicks are wild and will toss your salad.
. . . or your meat and 2 veg.
They are. I married one. Haven't brought up the tossed salad though, not my thing. She looks white though, was born here, and has no accent, so maybe that's why....
As far as PR and riots go, it's already shitty down there. She has family that all live in the more upscale part of San Juan and they still here gunfire all the time. Her dad was talking to some family member of his recently and heard automatic weapons fire. The guy just told him 'yep, pretty sure that was an AK47. They have made it to where you have to go through an insane amount of bullshit just to own a bolt action hunting rifle or an over-under double barrel shotgun, but surprise, surprise, there are all kinds of guns out there' so they already have the whole gun free zone success thing going for them. There aren't any FSAers in her family that I've met, and none of them want to go back to PR. I've tried explaining to them that we are in just as bad of shape up here, too. Unfortunately they are all republicans and most like Donald trump....
I had 2 and they were both good in action. The thing I liked the most about them is they were "instant on" or "always on", ie no time wasted with warm up like gringo chicks require.
Yeah, but they are all hairy squirrels.
They obviously were wet due to knowing they were being invaded by a gringo swimming in federal reserve notes.
Women are always 1 dimensional.
And I don't have sex with furry brown animals.
So no more free shit for the peeps?
What a pity.
So, let's see if I have this right...
Various government banks are created to sell bonds and loan the proceeds out to other bankrupt government agencies. My nasty suspicion is that this is merely the first layer of the financial onion.
Mental note: Never buy Puerto Rican rum ever again.
No...I think all americans will be bailing them out. The problem though is then, half the states will then default expecting the same bail-out.
They better think twice about bailing out PR.
Yes, the entire broke dick gulf coast will be watching closely.
You're right.
Detroit went tits up and is already crying for more money.
My working assumption is that PR Detroit and all the rest will get bailed out by the FRB printers.
Janet will buy.
Toss salad? Meaning like my bung hole?
Si!
Gee.... I learn something new everyday....thanks ZH
And a lot of other bung holes as well...so..don't kiss PR chicks on the lips!
The inside scoop on PR: https://www.youtube.com/watch?v=DDIQNO8PS8M
Oh sweet baby Jesus that has to be the funniest shit I have seen in a long time.
Stop and watch the youtube link!
ZH has to post that in the next PR thread. Fucking priceless.
Regards,
Cooter
P.S. I wonder what the actual spanish dialouge really was...
That guy's laugh woke my dog up out of a sound sleep. LOL, funny stuff.
Yeah - they're screwed.
"has negative cash balance, which, according to Height Securities analyst Daniel Hanson, "will make it 'nearly impossible' to meet all government payroll obligations over the next six weeks."
Not just "nearly", but a negative cash balance implies "FULLY imposible senor"
What would Fred Sanford say?
Its the big one Lizbeth!
"I thought dey was Messicans."
Why is that here on ZH I always see:
Yeah,_________,bankrupt country,but beautiful women!
Insert: Puerto Rico,Brazil,Argentina,Ukraine,etc.
Because all nations are bankrupt? ;-)
Upped you nmewn but on a $2 trillion GDP, Russia for example has Sovereign Debt of $248 Billion. I'm sure there are several others. Again i'm not nitpicking.
Oh yeah, I know how Keynesian economic-debt-money works but once a "sovereign" defaults, well, lets just say that wouldn't be my go-to currency.
Not picking nits either ;-)
Keynesian women are beautiful.
Janet Yellen is a Keynesian girl.
Another theory disproved! :>D
Feminism is a luxury only women in rich welfare states can afford.
+100
And here's the real question. Why does nobody say that about the U.S. or Canada?
But I guess as long as we show commercials with no skinny women on it, women are 'beautiful' here in our safe space.
But Muni bonds are a great diversifucked infestment!
More like a roach motel; you get lured in by the tax advantages only to find there's no way out.
Is this why the Fed met Monday?
No, I think it was FED ass grab day.
My thoughts as well. Maybe a backroom bailout for some majors or pensioners once this really goes south.
The whole brain dead bunch will vote for that facist bitch Clinton from NYC to Orlando and that is how the same lazy stupid broke shit spreads.
Long bungholes.
Thank God Warren's company is insuring a lot of this paper issued prior to 2008, eh? For the rest of those bonds - happy tax losses!
Heh, and Casey was always saying Puerto Rico was the best place in the US.
Puerta Rico needs a central bank so they can print and spend like we do in the USA.
They should hire Krugman - he can solve this problem easy -
Don't they know that debt doesn't matter?
That's some seriously fucked up DIP financing for a rum factory.
Call Trump.
I listened to a conference call this summer which said the PR govt pension had had enough assets to cover 4% of their obligations. The govt checks stop in early 2019. Definitely want to get out before then.
Pay the banksters. Jamie Dimon needs gas in his yacht. Lloyd Bkankfart needs more caviar. Warren Buffuck needs another mansion. Fuck the people they're just slaves. Piss on the people. Build more bridges for them to live under.