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It's D-Day For Puerto Rico As $354 Million Payment Comes Due, Padilla Heads To Capitol Hill For Help
Puerto Rico has a problem. The commonwealth needs to make a $354 million bond payment on Tuesday and the government is basically out of money.
We previewed this rather precarious situation twice in the last two weeks (see here and here), noting that this time is indeed “different.” Why? Because unlike August when the island paid only $628,000 of a $58 million payment (so, just about 1%), a large portion of what’s due Tuesday is GO debt guaranteed by the National Public Finance Guarantee Corp. A default on that spells litigation.
A default "would likely trigger legal action from creditors, commencing a potentially drawn-out process absent swift federal intervention," Moody's warned last month.
As a refresher, here's a bullet point summary of recent developments from BofAML:
- On 6 November, Puerto Rico released its unaudited quarterly financial and operating report. In the report, Puerto Rico makes plain that it faces a near-term liquidity crisis, has too much debt, limited ability to raise revenues, and a near-decade-long recessionary economy. As a result, it is our opinion that it will likely need to restructure its debt and, absent a voluntary restructuring, will prioritize essential government services at the expense of debt-service payments.
- Moody’s believes Puerto Rico is likely to default on at least a portion of its scheduled debt-service payments due 1 December, which include roughly $273mn of GDB debt guaranteed by the commonwealth.
- Moody’s Analytics opines that, without near-term Congressional action, Puerto Rico may very well suffer an economic depression.
- The US Senate Judiciary Committee scheduled a hearing on Puerto Rico’s financial crisis for 1 December. The Committee’s Chairman stated that allowing a debt restructuring without requiring structural and fiscal reform would be throwing away taxpayer money.
- The Puerto Rican House and Senate approved significantly amended local control board bills from the one the Governor submitted, turning the proposed “control” board into an “advisory” board. The two bills will need to be reconciled.
- The Puerto Rico Highway & Transportation Authority (HTA) cancelled $228.5mn of Ambac-insured bonds, a positive for Ambac-insured bondholders, as the insurer will have more claims-paying ability should Puerto Rico or its public corporations default
Hedge funds became one of the islands go-to sources for funding in recent years and last month, the worried trustees of the New York City Employees’ Retirement System sent a letter to its hedge funds and distressed debt managers imploring them to "find a just and equitable solution."
“Some hedge fund and other institutional investors’ reaction to the crisis suggests they will seek to impose draconian terms and conditions on Puerto Rico’s bond issuing entities,” the letter said. “The pension fund said it was concerned that large holders of Puerto Rico debt will raise their stakes and have the securities repaid at the expense of the island’s roads, bridges, sewer systems and other public assets,” Bloomberg added.
Late last month, the commonwealth’s Government Development Bank met with creditors’ advisors in New York in order to provide greater clarity on "the proposed restructuring process,” which the GDB says “is a comprehensive plan that will benefit all parties while supporting the creation of a sustainable path forward.” As Reuters put it earlier today, "Governor Alejandro Garcia Padilla wants to overhaul spending and restructure debt, but bondholders are resisting cuts to repayments, and restructuring discussions look to take months."
Of course Puerto Rico doesn't have "months," they have "hours" and as of Monday evening, no decision had been made on whether to default in order to ensure that the government has the cash to provide public services. As we put it last week, "Padilla isn’t likely to sacrifice the public interest at the altar of the island’s debtors." Even so, Daniel Hanson (the Height Securities analyst who recently warned that social unrest could be on the horizon as Padilla runs out of money to make government payroll), says a default may mean GDB goes into receivership, an outcome that would "almost certainly result in a stay" on the government's ability to move money, hindering its ability to operate.
And it's not just about the GO portion of today's payment. "Even a default on the non-GO portion could result in litigation against the GDB," Reuters warns before quoting a creditor source as saying that "of course" everyone would sue. "It would be really messy."
As for what happens if Padilla defaults on the GO share, "there would be a new round of selling pressure," John Miller, co-head of fixed income for Nuveen Asset Management told Reuters. The odds of Puerto Rico making another GO bond payment due on Jan. 1 "would drop precipitously," he added.
As a reminder, the commonwealth owes another $303 million in 30 days. Here, courtesy of Barclays, is a look at debt service payments by entity to 2020:
Meanwhile, Padilla is a witnesses at a 10 a.m. Senate Judiciary Committee hearing today. The Committee, headed by Iowa Republican Charles Grassley, is meeting to discuss a legislative proposal to assist Puerto Rico. As Bloomberg put it last month, "Republicans would prefer that Puerto Ricans solve the crisis on their own, but if they can’t, lawmakers will probably seek to impose 'something like' a federal control board." Here's a preview of the hearing from Bloomberg:
Puerto Rico’s $70 billion debt crisis has already led to four hearings in the U.S. Congress this year, hours of testimony and no consensus over how to help the Caribbean commonwealth. Another hearing today is unlikely to change that.
As Governor Alejandro Garcia Padilla’s administration decides whether to default on $354 million of bond payments coming due, he will appear before a hearing of the Senate Judiciary Committee, which has power over a bill that would allow some Puerto Rico agencies to file for bankruptcy. That measure has stalled for lack of a single Republican sponsor.
Senator Chuck Grassley of Iowa, the committee’s chairman, and fellow Republicans are expected to echo criticism of Puerto Rico expressed at the previous meetings, when lawmakers reprimanded the island’s accounting practices and said any aid would be wasted if it doesn’t contend with its chronic budget shortfalls. Republicans control both houses of Congress.
“Grassley is likely to criticize the current Puerto Rico government for not doing enough in terms of austerity and not producing the audited financial statements,” said Brandon Barford, a partner at Beacon Policy Advisors in Washington and a former Senate aide. “And Grassley is crucial to passing any legislation that would help Puerto Rico.”
The lack of agreement has left the U.S. largely on the sidelines during the island’s escalating fiscal crisis, which resulted from years of borrowing to pay bills as the economy struggled to grow and residents left. Garcia Padilla in June said the island can't afford to repay what it owes, and today it may default on bonds guaranteed by the central government for the first time.
Puerto Rico’s non-voting representative in Congress, Pedro Pierluisi, President Barack Obama’s administration and Democratic lawmakers have been seeking to grant the island or its agencies the ability to file for bankruptcy, which allows debt to be written down in court. While cities including Detroit have done so, that option isn’t available to Puerto Rico under the law.
As for creditors' chances of getting paid, Matt Fabian, a partner at Municipal Market Analytics who spoke to Bloomberg, laments that “we’re a trust-based market [and] once that goes away, you’re cooked.” Fabian is referring to the concept of "willingness to pay" in the muni market. He says Puerto Rico’s willingness to pay is the only fundamental credit factor that’s changed, not its ability. Here's more:
"In corporate situations, issuers and creditors are usually on the same team: more revenue is better, Fabian explained. For states and cities, that’s not always the case. More revenue often comes from an increase in taxes, one of the least popular moves an elected official can make. With an unlimited taxing power, a politician’s willingness to raise taxes to unpopular levels is just as important as its ability to do so, Fabian said."
So stay tuned, as this will be a drama-filled 24 hours for Padilla and the commonwealth which, as Reuters colorfully puts it, is "a meteorological paradise mired in economic purgatory."
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Default, baby, Default. Stick it to the banksters!
On the other hand, the banksters will then stick it to us.
So, in the interests of reducing carbon emissions, lets hang all the banksters!
I'm thinking walk like an Icelander here.
what is 354 Millions these days
1.Kiss ASS on Capitol Hill (60 min to 90 min process)
2.Fed prints the money in 10 sec
The entire process takes 60 min to 90 min, depending how much kiss ass you need to do with our crooks politicians
Puerto Rico's epic fail must explain the market levitation.
Another country on the verge of becoming a sex tourism destination. The more, the merrier.
Pack your condoms lads, the season is just about to start.
http://goo.gl/9IEbDI
For physical safety, you're probably better going to Greece instead.
This is absolutely hysterical ... it is so funny I literally had tears in my eyes ... an interview with the Puerto Rican Finance Minister ...
https://www.youtube.com/watch?v=DDIQNO8PS8M
Regards,
Cooter
H/T to the poster in a previous thread for linking it (first time I saw it).
Unlikely because of the large public pensions invested in there as possibly held by a lot of Americans from the funds invested in ther.
Western media has dumped Iceland into the Orwellian memory hole in order to prevent other populations from learning from Iceland's handling of criminal banking cartels. Western media must bury Iceland and instead talks up the miracle of Ireland, where so minor growth has prompted hails of victory. Bailing out bankers works they scream! Look at Ireland! In fact, Ireland is not fixed, if some tax refugees move to Ireland and hire a few people, that does not wipe away the populations debts, and those debts will last for generations.
Forget Iceland where it all worked out! Remember Ireland where the bankers won and liar media claims it all worked out!
Media in the west is now a tool of corporate fraud. And will remain so.
Hang Maduro .... PR has toilet paper and soap and spaghetti .... wrong order .... spaghetti, TP, soap ?
Silly Rabbit, banksters don't absorb defaults. That's what the CBs are for. Or this guy:
https://www.youtube.com/watch?v=Jxph6zErgYI
The banksters never take losses on their gamble. A last minute bailout pushed by Obama as he knows who his masters are, Wall Street.
Bailouts through more debt until there's a currency crisis. Fed wil just buy the treasuries and make them disappear.
I dated a great Puerto Rican girl on the island around 17 years ago. All of this was obvious back then that this was coming. Unbelievable how long it took. Just some perspective of how much longer the crap can go on in USSA especially with its army to enforce what it likes.
LL, you always forget about the politicians. Those who sell us to the banksters.
Puzzle #54 Change the following in 5 steps:
D E F A U L T
_ _ _ _ _ _ _
_ _ _ _ _ _ _
_ _ _ _ _ _ _
_ _ _ _ _ _ _
B A I L O U T
I can only get to B A F F L E D
Obama should sign an executive order granting Puerto Rico its independence and cut them loose once and for all.
Should be good for a massively geen day today.
Ha! - $354 million. Bankster pocket change.
Yup.
A few minutes of national debt.
Pikers.
+1 for use of "Pikers"... brings back memories.
Bailout time, bend over all you American "tenants"!!!
Does Puerto Rico have to do Obamacare as well?
If not.....how does that work?
fucking irrelevant.
Obamacare does not apply to Puerto Rico.
Some doctors are coming to Puerto Rico just because of this.
Can my state just go back to being a territory then?
PR will default the vault is empty. US is in same boat, except we can still print money out of thin air! Yesterdays action, yuan, was but another nail in the coffin.
Hey, I learned this from Turkey.
EVERYONE in PR get on a boat, raft or anything that floats and head for Florida. Go immediately to the Social Service agencies and DEMAND free housing, medical care, education, money (EBT) for food and sustenance. Then after nearly crushing Florida, Alabama, Georgia you work out a deal for $3 billion to stop the flow of economic refugees in return for statehood and other perks. Half the $3 billion disappears into the pockets of a few (bankers and politicians) while the refugees return home.
Florida really gets the worst of the worst....
Scum from the Caribbean, central and south america....scum from north of the mason dixon....
One time when I was in Key West, at the most southern point in the US, two mixed race haitians came up on shore, and boom, instant benefits.
Syrians and mexicans driving around with the chinese in their brand new suv's carrying around their demon spawn. I am sure they worked hard too.
And me the white guy.
A 'terrorist' in his own nation.
Hide your money if you got it white men.
Hide it from women, brown and black people, the law, the government...
If you don't they will come for it.
We now live in a world of reverse darwinism aka idiocracy.
Correct. Evolution=bad consequences for bad behavior...
This country has in fact been rewarding bad behavior for years!!!
free John Corzine!! oh wait, nevermind...
I tremble for my country when I reflect that God is just; that his justice cannot sleep forever.
Thomas Jefferson
That's really dependent on the sheeple being awake or continuing to dream...
They are American citizens. They will board a plane and fly non-stop to NYC.
Same as it ever was.
somehow I think the Fed will have to act. right mr yellen?
Puerto Rico, a great opportunity to test the limits of Americans tolerance to slavery? I mean austerity.....
Nothing is too big to fail. We must stop rewarding failure. We must also punish those responsible for causing the failure along with those task to supervise/overwatch (e.g. the Fed with banks) failure.
Puerto Rico needs to follow in the footsteps of Iceland.
You're new, eh?
too bad their name isn't goldman sachs otherwise they would be getting their bonus soon.
This will be bailed out and the tab put on the US taxpayer. It is not a default against bankers. This criminality will hit all areas of society- pension funds, retirement accounts, investment portfolios, municipal holdings, endowment funds, etc. PR was an investment haven with triple tax free bonds.
Largely covered by the National Public Finance Guarantee Corp, I wonder how much they will actually cough up.
Yo Yellen, liquidate bitch!
It would be sweet to see all the COMEX gold contracts bought up and ask for delivery.
Since these contracts are so over-subscribed it would cause quite a storm.
My question is will any politician learn from this.....that maybe you should only spend what you have...and not borrow to buy your votes
Come on man, that's against the Banker and Politician's Hypocratic Oath.
Rule No. 1 - Who gives a shit about you or the future, it is all about me and my millions.
*trillions
Not only will the politicians not learn but the sheeple that elect them won't either.
A few years ago, a shit hole little town in Rhode Island, Central Falls, went bankrupt. The state bailed them out and appointed an overseer to get the finances back in order. The overseer dialed back the pensions to where they should have been based on actual revenue. The sheeple were horrified and immediately started claiming that they deserve elected representation. They also claimed that they were just average people that deserved the outrageous pensions that were given to them by the politicians that they elected. It is a game that works as long as there is a bigger population to rob (tax). After emerging from bankruptcy the pensions were cut by 50%. Slowly the state of Rhode Island has agreed to fund them more.
That is what will happen in PR. The gov worker unions elect politicians. As payback, the politicians promise compensation packages that are beyond the financial means. Eventually it blows up. Politicians retire with their guaranteed packages. Gov worker unions complain they are owed the money. US gov will pay. Rinse and repeat.
I'll gladly pay you Tuesday for your vote today.
why ? buying votes or stealing when you get in office is the American way!
PR is the epi center for the New Muni Bankruptcy Law 2017 - post election - All Public Entities: State, County, City, Territory together with any alphabet soup agency will be permitted to file BK. The "ultimate" objective will be to jetison Public Pensions, Public Employee Contracts.
and with some imagination - public schools - as a responsibility of the taxpayer. Premise: If you want to have fun - in the form of Fucking - the detrius belongs to the people who had "fun" - No one Else - Game Over -educate yourself Parents!
Oppressed Property be Freed from Bondage and Schackles !!!!
If the ultimate objective is to jettison public pensions, public employee contracts, and public schools, then sign me up and send me the paperwork for a second identity with which to double my vote on the requisite measures.
Puerto Rico needs to declare independence, shuck off the bonds and change their name to "Puerto Greeko".
Silly news, this takes 3 seconds to print, why the need for Pidilla to go anywhere?
Let me see... I think Padilla will get help from "Capital" Hill. Because giving away more printed paper to bail out a poorly run government is the expertise the golfer has. As long as it increases US debt, they'll have a deal.
Puerto Rico to Pay Christmas Bonuses: Puerto Rico's government, after fanning concerns that it won't be able to make bond payments due in December, said it plans to pay Christmas bonuses this year.
On Tuesday a Treasury spokeswoman confirmed an account on the El Vocero news web site quoting Puerto Rico Treasury Secretary Juan Zaragoza Gómez as saying the bonus would be paid. The bonus will be delayed to December because of Puerto Rico's tight financial straits, he said.
Some bondholders are concerned whether Puerto Rico will make bond payments due on Dec. 1 and Jan. 1. The Government Development Bank for Puerto Rico owes $354 million in debt on Dec. 1. According to Moody's Investors Service, $273 million of this sum has a constitutional guarantee and $81 million does not. Puerto Rico also owes $330 million in general obligation debt on Jan. 1.
Puerto Rico's government says its liquidity is very low and is expected to remain that way for the next several weeks. Its leaders have raised possibilities including a partial shutdown of the government, skipping the Christmas bonuses, and not making the December or January bond payments.
This year's approved budget allocated $120 million to Puerto Rico's Christmas bonus, according to the TelemundoPR web site. The government normally provides the Christmas bonus every year.
On Nov. 10 Puerto Rico Gov. Alejandro García Padilla said he was seeking to negotiate with the bondholders but that, "If you don't negotiate and I am obligated to choose between the creditors and the Puerto Rican people, I'm going to pay the Puerto Ricans."
Puerto Rico's government met with representatives of some of its bondholders on Friday in New York City. According to published accounts at least some of the bondholders were open to Puerto Rico's proposed "superbond" to replace existing bonds.
... to be replaced one day by the Super Dooper Bond
They need a minor/ so so terror event. Distract the proles for a day or so, while they jiggle the books and make this go away. And it will, just, " go away". Anybody want to bet me? A dollar? It will, just, " poof", fixed.
No pain. No job loss losses. No consequences. Nothing. Nada. Zip. Zilch.
Hell, they'll probably increase the free shit and govy jobs.
A gov job is free shit in a box.
I give up.
Como se dice "Timmmberrrrrrrr" en espanol?
Getting much better leverage pumping markets higher vs writing them a check
It's okay. We'll take a check.
I don't know what there problem is, I don't spend much money when drinking Rum all day.
Hey Puerto Rico - declare WAR on the United States and you'll have all the money you need within hours!
...and guns and missiles and Toyota SUVs too. Woar is big business...it's BULLISH for everyone's economy!
Me speak no english so sry so sry no money.
I knows, I knows...so'mo' EBT so's we's ca' do it fo' d'chillens...
da EBT won' jus' make y'all rich...it be makin' y'all nigrow rich...
You made me promises, promises
Knowing I'd believe
Promises, promises
You knew you'd never keep