Puerto Rico Takes First Steps Toward Bankruptcy-ish Filing

Tyler Durden's picture

After what has been the slowest of slow-motion train wrecks, Puerto Rico’s federal overseers have finally taken the inevitable first step toward considering the use of bankruptcy-ish proceedings, known as Title III, to allow the island to escape it's $70 billion debt burden. 

Last year Puerto Rico was granted a 1-year temporary stay, courtesy of the so-called Promesa Act passed by Congress, that allowed protection from creditor proceedings in order to allow the debt-burdened island to negotiate a consensual agreement with bondholders.  That said, the stay expires on Monday and the government has struggled to make headway in negotiations with creditors.

With $70 billion of debt outstanding, Puerto Rico’s debt restructuring will be the largest ever for the $3.8 trillion municipal-bond market and is also expected to be among the most complicated as well with the commonwealth’s debt issued by more than a dozen agencies and backed by sometimes competing repayment pledges. 

As Bloomberg notes, the board also took steps to wind down the island's government development bank which was used to finance multiple public projects but also defaulted on debt obligations.

Separately, the board approved winding down Puerto Rico’s government development bank, which financed public works on the island until it defaulted during the crisis, and increasing water rates as part of a plan to steady the Puerto Rico Aqueduct and Sewer Authority. Details of those fiscal proposals haven’t yet been released.

 

“This will provide a viable path for an orderly process for the Government Development Bank with the least impact for stakeholders involved,” said Elias Sanchez, Governor Ricardo Rossello’s representative on the federal board.

Of course, the shear size of bondholder losses are sure to make the restructuring process quite contentious.  The following $3.5 billion in 8% general obligation notes of 2035 were issued in March 2014 and have pretty much traded in one direction ever since. 

PRC

 

And while GO bonds currently trade hands in the mid-60s, Desmond Lachman of the American Enterprise Institute sees the ultimate recovery for bondholders being much more bleak courtesy of an economy that has been contracting since 2006 and shows few signs of picking up anytime in the near future.

It is difficult to overstate how desperate the present state of the Puerto Rican economy is. In each of the past 10 years, its economy has been contracting, and it is now more than 10-percent smaller than it was in 2006. Over the same period, more than 10 percent of its population has left the island for the mainland and its unemployment rate has risen to over 12 percent of its workforce.

 

Even before the slew of costly and disruptive creditor lawsuits that will almost surely follow the expiry of the U.S. Congress’ temporary stay on such suits next week, the island’s economic outlook was nothing short of grim. According to the Puerto Rican government’s own 10-year budget plan, which was approved by its Oversight Board, the island’s economy is projected to decline by more than 3 percent a year in 2018 and 2019 and by around 10 percent over the next five years.

 

In this context, it is striking that in Puerto Rico’s recent 10-year budget plan, which had the approval of its Oversight Board, the island would only make around one quarter of the debt service payments falling due over the next 10 years.

But at least a bunch of lawyers and investment bankers will make out pretty well.

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NugginFuts's picture

buh buh buh bullish!

 

MarsInScorpio's picture

Puerto Ricans are always bitching about the US.

The truth is that they have nearly all the benefits of statehood with none of the taxes.

I say, "Freedom for Puerto Rico!"

Time for PR to make its own way in life as a free country unbound by the shackles of US domination (If you can't tell that line is sarc, your sarc radar needs fixing.)

Seriously, cut them loose. What does PR contribute to the US anyway? (Thinking of Sotomayer wouldn't be on the SC . . .)

Independence for Puerto Rico!

However, in the Real World, the bondholders will get the Prostitute Congress to bail them out so the bondholders don't eat their incredibly horrible investment.

 . . . and you wonder why the stock market only goes up . . . ??? It's because THERE IS NO RISK!!!!!

Déjà view's picture

Floridians...more on their way...stock up on black beans...

Semi-employed White Guy's picture

Once all of the Ricans move to Florida.  Maybe whites should move in and leave Florida to them. They breed like rats so Florida is screwed.  Europeans could make PR a paradise instead of the third world shit hole it is. Of course, then the Ricans will want back in!  Everyone hates whitey, but they love his civilization!

RovingGrokster's picture

Let's send the "Wise Latina" back to PR to fix their problems.

Shouldn't we have a rule that only US-born citizens can be Supreme Court Justices. You can't be half a citizen and expect the full rights benefits. (Come to think of it, we should have applied that to Obama!)

Laddie's picture

The PRs have been living off the American taxpayer since 1917.
I wonder (((WHO))) it was that thought of giving them US Citizenship back then.

DownWithYogaPants's picture

??? we should never have de facto latin states.  The whole paradigm of latin america is different than germanic anglo saxon america.  I'm not saying one is better than the other although I am allowed to have a preference.  What I am saying to you is the 2 business models don't mix.

RovingGrokster's picture

I know - donate PR to La Raza as a tribal homeland!

Semi-employed White Guy's picture

You can thank douchebag Teddy Roosevelt for "winning" us that shit hole.

RagaMuffin's picture

PR ought to apply to the EU just for shits and giggles.........

panamared's picture

This is what happens when nobody cares until the final second field goal gets added to the scoreboard and your team loses

bonin006's picture

Ted Cruz gave me an idea. Just take all of the the Clinton's ill gotten gains (everything they have), and use it to help out Puerto Rico.

jamesmmu's picture

Fed will first take it over with taxpayers money and ordely lidiquate it and create no fucking systemic risks. yes, thats, this is what will happen next.

south40_dreams's picture

Wouldn't it be cheaper to just nuke Puerto Rico?

stacking12321's picture

go back to davos, sociopathic bankster lackey.

Winston Churchill's picture

Little kim needs money,so thats a win win.

AGuy's picture

"Wouldn't it be cheaper to just nuke Puerto Rico?"

Give it to one of our foreign creditors to eliminate the trade deficit. I think we owe China about a trillion. Just hand PR over in exchange for the debt we owe them. Two problems solved with one very insolvent territory!

Rolln's picture

Putin wouldnt mind renting some dock space i bet...

rlouis's picture

How much did GS make on the bond issues? And I would almost bet if you unravel the bonds with competing repayment pledges you might find GS involved on both issues.  

barysenter's picture

The track record for bailouts is zero success.

The United States just finished paying off the Rothschilds for the loan to conduct the Spanish-American War over Cuba that our nation was tricked into by banksters.

NO!

sinbad2's picture

Oh BS the US made a fortune from pillaging Cuba Haiti and the Philippines, and still does, except for Cuba of course, who won their freedom.

barysenter's picture

Thats not trickle down economics. Thats tptb pissing on you, and other vile fluids.

Lostinfortwalton's picture

Well, you could reactivate Ramey AFB on the western end of the island that used to be a SAC base and is now home to mostly civilian cargo operations, and you could reopen Roosevelt Roads naval base on the eastern end of the island. Base a carrier or two there and some subs. The subs are always doing manuevers in some of the deep areas off some of the islands anyway. And you could put an Army detachment there also. Help the economy and give the servicemen a decent duty station to try and get assigned to. 

Stormtrooper's picture

I remember 3-4 years ago when the desperate condition of Puerto Rico was becoming obvious, "investors" fell all over themselves to buy more Puerto Rico bonds at high rates on the assumption that the American taxpayer would ultimately make them whole.  Looks like that may have been a bad bet this time.  Suck it up and take your losses like a good gambler.

cheech_wizard's picture

Remember when all this started back in 2015...

Ho ho ho...

http://www.reuters.com/article/us-puertorico-bonuses-idUSKBN0U403J20151221

Standard Disclaimer: Cut them loose. What's one more Haiti in the world.

sinbad2's picture

Maybe cut Haiti loose too, surely the US has taken everything of value by now?

Peanut Butter Engineer's picture

What value did Haiti ever provided? Please state then all and cite some sources if possible.

WakeUpPeeeeeople's picture

One third of Haitians are HIV postive. How about rounding up a few thousand and then turning them loose in downtown Atlanta. Works for me.

Peanut Butter Engineer's picture

How about we kick them all out just like some lunatic Muslim. They aren't productive and they are leeches in our society.

SoDamnMad's picture

Not the US has taken everything of value, the Clintons took everything of value. (Fixed it for you)

RovingGrokster's picture

We're in violent agreement :)

Semi-employed White Guy's picture

The wealth the clintons plundered was from charitable contributions from the US.  The Clintons stole nothing from the Haitians since they had fuck all. What the Haitians did (once) have was a lush tropical paradise.  They fucked that up all on their own.

RovingGrokster's picture

The Clintons took everything of value - the rest of us, as always, neither asked for, nor received, plunder.

Offthebeach's picture

When the total Puerto No Rico collapse happens, we'll find all those 1950's-70's hubcaps that were stolen. 

Anderson Coopers Gerbil's picture

Sell it to Mexico for the price of the wall

sinbad2's picture

Sell it to China, they could use it for missile defense.

sinbad2's picture

Being a colonial power is an expensive business, if you can't afford your colonies set them free.

Ignorance is bliss's picture

I was in P.R. two weeks ago. The hotels and higher tier restaurants are very expensive. There are two classes of people. Those that own everything and the people that serve them. P.R. Will default...their ability to generate income from the population cannot support the current system. It will be interesting to see the fall out.

Semi-employed White Guy's picture

The fallout will be they will all move to Florida, go on SS Disability breed like rodents and make it a permanent blue state.

Catahoula's picture

Quarantine the shithole. Puerto Rican fags and AIDS go together like America and Apple pie

kenny500c's picture

In the era of ultra low interest rates bankruptcies are even more devastating because it is almost impossible to regain the lost principal.

Montana Cowboy's picture

A friend in Puerto Rico just called me. He said martial law has started in San Juan. Troops in the street.

bluskyes's picture

The first step towards bankruptcy is the establishment of a private central bank

cherry picker's picture

Trump is sending a flat top, some subs and nukes to Puerto Rico for being disrespectful

are we there yet's picture

The problem with Puerto Rico is it is populated by Puerto Ricans. Difficult to fix that.

Stinkytofu's picture

wow!

 

looks like a great opportunity for some argentine vultu.., i mean, "hedge" funds to

buy up pootarican debt for pennies, then demand full payment.

 

naturally the us courts will require full payment to those argentina vultur.., dang it, i

mean hedge fundsters.

 

rght, right?

Last of the Middle Class's picture

Somewhere there's a banker working overtime to bundle and sell the worthless bonds one more time for some nice profit taking. It's like walking on water, it's possible, you just have to be REALLY fast.