Trump Reverses On Puerto Rico Debt Forgiveness: "We Will Follow The Bankruptcy Process"

Tyler Durden's picture

One day after Donald Trump unleashed turmoil in the municipal market, launching a selling avalanche in Puerto Rico GO bonds which crashed to all time lows, shortly after the president signaled an openness to wipe out Puerto Rico's debts during an interview with Fox News on Tuesday, the White House has thrown cold water on the prospect of Trump forgiving Puerto Rico debt.

Recall that on Tuesday night, Trump told Sean Hannity that Puerto Rico "owes a lot of money to your friends on Wall Street and we're going to have to wipe that out," adding that "You can say goodbye to that." The next morning Puerto Rico bonds plunged, with the 8s of 2035 tumbling 10 points from 44 to as low as 32, an all time low, before rebounding modestly.

 

To be sure, the reason for the market freak out is that bondholders were on edge that just like Obama in the GM restructuring fiasco, Trump would overturn the traditional bankruptcy process, and favor one group of stakeholders over another. In this case Trump was convinced that Wall Street is the primary holder of PR bonds, although he may have changed his mind upon learning that well over half of Puerto Rico GO bonds is in retail investor and pension fund hands.

And, as a result, when asked about Puerto Rico's more than $70 billion in debt, White House press secretary Sarah Huckabee Sanders said that the best thing for the island will be for it to use the normal process set up to deal with its debt. In other words, no debt "wipe out", and instead the bankruptcy process would be observed.

"There's a process for how to deal with Puerto Rico's debt, and it will have to go through that process to have a lasting recovery and growth," Sanders said Thursday, adding that "that is a process that was put in place and set up under Obama, and has a board of advisers that deals with that debt. It'll go through that process as we move forward."

"The president wants that to go through that process and that’s the stage we’re at on that"  she concluded. In 2016, Congress established a debt oversight board tasked with controlling the island's budget and debts as a way to deal with spiraling debt in the country.

Sanders' comments were the latest attempt by the administration to walk back Trump's debt forgiveness suggestion: on Wednesday OMB head Mick Mulvaney told CNN that Trump should not be taken "word for word" and later told Bloomberg News "we are not going to pay off those debts."

Still, despite the administration's reversal, Puerto Rico bonds have failed to rebound from recent lows, and were just shy of all time lows following Sanders' statement.

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freedom1798's picture

Well, shit, isn't bankruptcy the same as default?   Maybe the imbecile creditors will get pennies instead of nothing.  Big deal.  Nobody will loan to the spics again unless they get some sort of insured loan at 100% interest.

Shitonya Serfs's picture

At least this solidifies which way the Puerto Ricans will vote, once they migrate to FL.

Ramesees's picture

Baupost is the largest single holder of PR debt.  Fuck Baupost.  They think they're going to hold the US taxpayer hostage to get their money back.  Fuck them.  Wipe them out like the ECB did to Chelsea Clinton's husband's hedge fund that was buying Greek debt trying to hold the EU taxpayers hostage.   

gigadeath's picture

Could Americans even count to 51 stars for Puerto Rico? Or 52 for Guam? 53 for the USVI? etc. etc. ;)

peddling-fiction's picture

Shutter PR, Inc. and open PR2, Inc.

jcaz's picture

Due process,  Act of God, etc- it's all the same- zero is zero.

But don't think for a minute that the "Backed by the full faith and credit of the US Govt" line is gonna float in bankruptcy court- fuck that-  zero, bitches-  this PR AAA bond shit has to come to an end,  now is as good of a time as any.

The Alarmist's picture

Would be interesting to know who was buying up all the PR trash that was being dumped yesterday. I'd be surprised if GS wasn't on the buy-side of a lot of those trades. Funny how a value boosting "reversal" comes out today. Must be Mnuchin talking sense into Trump.

Muppet's picture

Puerto Rico muni's are already backstopped by U.S. taxpayers thanks to Speaker Paul Ryan.  Just after becoming Speaker, Paul Ryan led and passed the Bill for U.S. taxpayers to backtop PR debt.  At that time, Ryan however announced that he appointed a blue ribbon panel that would ensure PR would steer away from any default and thus U.S. taxpayers had nothing to worry about.

Overall, the U.S. has co-signed for PR.   I do not believe PR folks will migrate to FL because they'll get far much more money than they could have ever imagined just by staying in PR.   Jobs and cash for all.   Hey, the U.S. is paying.  Yay.

Arnold's picture

Not bad.
A Cuba of the middle of the century opportunity.

peopledontwanttruth's picture

And the world laughs at the 3 Stooges of America

1) Legislative Branch
2) Judicial Branch
3) Executive Branch

This country is speeding to the bottom like it's attached to a 1 million pound weight

Al Gophilia's picture

Trump folds on PR debt.

Goldman here Don. Can you go light on the " this debt will have to be forgiven" crap?

  Oh, sure, ok. What should I say then?

      You'll think of something.

BeansMcGreens's picture

One should read this article:

https://www.bloomberg.com/news/articles/2017-10-04/puerto-rico-will-run-...

 

Here is one of the quotes from the PR Treasurer.

"The treasurer said he has set aside funds to make payroll and pension payments in October. But if Congress fails to act, he said the island is facing a "total shutdown” on Nov. 1 that would curtail essential services and the distribution of aid."

"Maldonado said he has requested between $6 billion and $8 billion in aid from Congress to keep the government running for “a few months.”

Payroll and pension payments. Lot of overtime going on.

Muppet's picture

"Run out of money"  is nonsense.  PR has an open checkbook now that it has U.S. as its backstop.

Arnold's picture

Fuck'em, Let Chicago annex them.

GM insolvency 'bankrupted' all contract law in regards to the pay out pecking order under current Major Bankruptcy law.

tmosley's picture

>yfw Trump bought up all PRs debt at pennies on the dollar after talking it down

>yfw he makes them pay the debt at par

Troll-in-chief. 

Arnold's picture

tmosley, pick some sort of way forward in a philosophical way, so that you are not just a bomb thrower.ald
Age does not show you wise.

duo's picture

Exactly.  2 million votes down the shitter.  You could say at $70B, that's $35K a vote, about 30% more per than what Hillary spent.  Somebody is going to take a loss on this no matter what, so why not make political hay?.  Bad move.

Professorlocknload's picture

Offer .01 %. Calpers 'll go all in. It's only PC.

keep the bastards honest's picture

Bankruptcy process is very profitable for those carrying it out. Ism still waiting for finalisation of a bankrupt company for 7 years which I invested in unfortunately encouraged by my accountant... cunningly done so he could not be charged.

garcam123's picture

Well shit isn't racist cocksucking white punk the same as spic?  So suck my fucking cock you piece of shit and I'm a white boy you punk! And I fucked your pig mother in the ass.....that's where you cum from strained through the filthy sheetafter I wiped her stinkin ass motherfucker! OH! and by the way suck my cock you piece of shit!

BritBob's picture

Look out for the UN!

The UN C24 with such members as Iran, Syria, China, Cuba and Russia want to muscle their way into US Puerto Rico affairs:

The United Nations committee on independence for colonies yesterday passed its annual resolution asserting Puerto Rico’s right to self-determination and independence.

The U.N. has identified three options for a territory’s self-determination: In addition to independence, what would be statehood in the United States and nationhood in an association with another nation that either nation could end.

Popularly known as the decolonization committee, the panel created in 1961 has never had jurisdiction concerning Puerto Rico’s political status. Despite this, it has passed resolutions on the subject since 1972.

It has not, however, been able to get its resolutions further approved in the U.N. The U.S. Government has blocked its efforts. A little bit of information on the said committee -

Falklands – UN C24 Committee:

 

https://www.academia.edu/11274445/Falklands_-_UN_C24_Committee

agstacks's picture

I guarantee they have no interest in self determination.  The big, big, bigly waters of the tempestuous sea and all that..

garcam123's picture

FYI........nobody give a fuck about you and all your rotten teethed brethern, although I did have an English Lady as a girlfriend once.....bitch teaed me to fucking death along with the fucking Bubble and Squeak, Bangers and Mash, Yorkshire pudding......ta!  But she was a good girl in the sack......Mi Lord! Damn if she didn't make me sleep good!

agstacks's picture

I bet those goldman boys got in on this one

Truther's picture

Why not just bankrupt this whole shit show. Really.

GunnerySgtHartman's picture

Good.  Make PR to go through the process.  If PR's debt had been forgiven or otherwise made whole by the US taxpayer, a disastrous precedent would have been set for the states which have pension funds on the edge of collapse - like Kentucky.

Vilfredo Pareto's picture

Fuck Kentucky.  Fuck Chicago.  Fuck Hartford.  Fuck them all.  

 

Tax free muni investors have it coming to them.

RougeUnderwriter's picture

Isn't a muni bankruptcy (Chapter 9 filing) different from a CH 11. Some of this muni type debt is required to be paid back by increasing taxes first isn't it?? General Obligation Bonds take the full hit but Bonds back by a tax or revenue stream get special treatment don't they? Whom ever owns this crap is fully aware of where they sit in the pecking order of recovery and will petition the court to better that position.

http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chap...

RagaMuffin's picture

"There's a process for how to deal with Puerto Rico's debt, and it will have to go through that process to have a lasting recovery and growth,"  In the US its called a bailout   \S

Don Sunset's picture

Numerous states from Illinois to Rhode Island (some of the "NE" states are the worst) are watching this process closely.  Can't wait to be free of debt.

Nigger Rich's picture

Why is silver better investment than gold? Is is because the silver price varies a lot more? more upside?

Duc888's picture

 

 

Silver is an industrial metal, gold, not nearly as much.

Arnold's picture

Get change for your $1200 token at the bodega.

Arnold's picture

Plenty of room for both.

Arnold's picture

Which do you use more?
Thousand dollar bills, or twenties?
The bodega will likely accept pieces of eight, silver.

Arnold's picture

At Central American Bodegas, when not manned due to my white privilege, I always left more than the cost of goods.

Word gets around very quickly.

Arnold's picture

You must build a reputation before you become a source of trust and / or knowledge.

Social media does not do this.
The 99% of it is shit.

agstacks's picture

It is more rare above ground than gold and the silver to gold ratio is currently over 70-1. Comes out of the ground 9-1.

agstacks's picture

It is more rare above ground than gold and the silver to gold ratio is currently over 70-1. Comes out of the ground 9-1.

Bemused Observer's picture

It comes in more user-friendly increments, is more accessible to the common man, thus making it more useful for transactions of the day-to-day variety. Gold, being slightly more rare, is more suited for the storage of wealth, or for very large transactions, such as real estate, or even the trade between nations. Think of gold as your bank account, and silver as your monthly budget money.

hooligan2009's picture

Pueto Rico is broke. Its citizenry of 3.4 milion accumulates debt at the rate of 2 billion a year - it cannot pay its way.

the 70 billion of debt represents payments to banks evading taxes, lawyers structuring tax evasion transactions, governments taking bribes and endemic corruption on a libtard socialsit states that it is another cuba.

the country could spend 50 billion on repairs in the countryside outside San Juan and leave Puerto Rico in the same state it is now - that is, a failed libtard socialist demonrat run nation state.

or 10 billion could be spent on buidling houses, roads, schools and hospitals outside San Juan.

my bet is that libtard socialist demonrat polticians will get 50 billion over ten years to spend on libtard demonrat socialist policies - that is, on bribery, corruption and otherwise odious government spending.

by the way - why does it take so long to decleare Puerto Rico in bankruptcy - it is walking like a duck, talking like a duck and behaving like a bankrupt duck.

trump should put it into adminstration by executive order, appoint an administrator and sack the government and all its politicians.

after all, the insurance companies will pay nothing towards puerto rico - because:

Force Majeure

[French, A superior or irresistible power.] An event that is a result of the elements of nature, as opposed to one caused by human behavior.

The term force majeure relates to the law of insurance and is frequently used in construction contracts to protect the parties in the event that a segment of the contract cannot be performed due to causes that are outside the control of the parties, such as natural disasters, that could not be evaded through the exercise of due care.

 

itstippy's picture

Puerto Rico has our Full Moral Support.*

* "... has our Full Moral Support" is a phrase Henry Kissinger cooked up when he was Secretary Of State.  It roughly translates to, "We won't be sending you any money or guns; only lawyers".

Pernicious Gold Phallusy's picture

"We'll pile up teddy bears and candles after you die."

Kaiser Sousa's picture

fucking drama...

remember, what cant be paid wont be paid...

Vilfredo Pareto's picture

Everybody with a Puerto Rican bond needs them zeroed out lol.

 

I know that won't happen.  I hope they get ten cents on the dollar and then we have set a nice precedent for Chicago in 2025

GunnyG's picture

Fuck PR. They saddled that bucking bronco now let them ride the fucker. No bailout.