Puerto Rico's options: Default, restructure, bailout or bankruptcy?
Federalism Form and Function in the Detroit Bankruptcy
Puerto Rico - A Way Forward
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Puerto Rico Needs Debt Relief
Federal lawmakers have to allow the island’s public corporations, such as its electric utility and highway authority, to restructure their $25 billion in debt in bankruptcy court (as cities and government-owned businesses in the rest of the country can), according to a New York Times editorial. Read more.
Puerto Rico doesn’t have the money
When Alejandro García Padilla, the governor of Puerto Rico, announced on June 29th that its $72 billion public debt was unsustainable, he warned that the only alternative to a comprehensive restructuring “would be the unilateral and unplanned non-payment of obligations,” according to a commentary in The Economist. It would be a drastic step for the autonomous American territory, which the United States regards as a commonwealth. Mr García Padilla was presumably hoping to intimidate Puerto Rico’s recalcitrant creditors into accepting their inevitable losses, thus averting disaster. Just a month later, the worst-case scenario has started to become a reality. Read the full commentary.
Estimated Puerto Rico Debt Recovery Values
|
SECURITY |
RATING |
OUTSTANDING (MLNS) |
EXPECTED RECOVERY VALUE |
|
General Obligation |
Caa3 |
$18,566.0 |
65-80% |
|
Sales-Tax senior |
Caa3 |
$6,244.0 |
65-80% |
|
Sales-Tax junior |
Ca |
$9,000.0 |
35-65% |
|
Industrial Development Company general purpose revenue bonds |
Caa3 |
$176.9 |
65-80% |
|
Aqueduct & Sewer Authority |
Caa3 |
$3,852.5 |
65-80% |
|
Municipal Finance Authority |
Ca |
$781.2 |
35-65% |
|
Electric Power Authority |
Caa3 |
$9,054.2 |
65-80% |
|
University of PR system revenue bonds |
Ca |
$470.8 |
35-65% |
|
University of PR educational facilities revenue bonds |
Ca |
$68.7 |
35-65% |
|
appropriation-backed debt |
Ca |
$1,165.5 |
35-65% |
|
Government Development Bank notes |
Ca |
$5,137.3 |
35-65% |
|
Highway & Transportation Authority senior debt |
Ca |
$4,418.5 |
35-65% |
|
Highway & Transportation Authority subordinate debt |
Ca |
$298.5 |
35-65% |
|
Infrastructure Finance Authority |
Ca |
$1,889.3 |
35-65% |
|
Pension bonds |
Ca |
$2,948.0 |
35-65% |
|
Convention Center District Authority |
Ca |
$408.5 |
35-65% |
Source: Government Development Bank, Moody's Investors Service
Which Puerto Rico Bond Defaults Next? 46% Yields Provide a Clue
Puerto Rico defaulted for the first time on Aug. 3, when a little-known agency, the Public Finance Corp., paid investors just $628,000 of the $58 million they were owed. The Finance Corp. is only one of the 17 arms of the U.S. territory that have sold tax-exempt bonds, according to the Government Development Bank. Unlike debt typically issued by countries, the securities carry varying degrees of risk because they're backed by different sources of funds and legal safeguards. Puerto Rico's big bond payments aren't until December and January, when $1.4 billion of principal and interest is due, and Governor Alejandro Garcia Padilla may arrive at a plan for retooling the commonwealth's $72 billion of debt before then. Victor Suarez, Garcia Padilla's chief of staff, on Monday said the government expects to have the cash needed to make the interest payment in January on its GO bonds as it plans to borrow money to keep the government afloat. Read more.
Puerto Rico Staring at $400 Million Short-Term Squeeze
Puerto Rico is approaching an inflection point that may prove to be more challenging than the commonwealth's decision this month to skip a bond payment for the first time. After borrowing internally, omitting debt-service payments and slowing tax rebates, the island is at risk of running out of cash to fund day-to-day operations. Puerto Rico must raise $400 million through a bank loan or a sale of short-term securities by November, Victor Suarez, Governor Alejandro Garcia Padilla's chief of staff, said Aug. 10 in San Juan. Garcia Padilla's administration had already alienated creditors before defaulting on $58 million of bonds Aug. 3 by saying they need to restructure a $72 billion debt burden that it can no longer sustain. Puerto Rico appears to be betting that investors will provide access to capital markets again once the commonwealth unveils a debt-restructuring proposal Sept. 1.