Puerto Rico Debt Crisis Splits Congress on Party Lines and Draws Muted …

30 Jun 2015 | Author: | No comments yet »

Puerto Rico Debt Crisis Splits Congress on Party Lines and Draws Muted Response From White House.

A webcast meant to deliver a message from Puerto Rico Governor Alejandro Garcia Padilla on the island’s financial woes instead started on a lighter note, as the feed mistakenly began by showing the game show “¿Quién Sabe Más?” Mr.

It was also aimed at leaders in Washington, who perhaps more than anyone could determine whether Puerto Rico’s finances can be stabilized or will slide into chaos. Officials of the U.S. territory will develop a debt-restructuring plan by Aug. 30, the governor announced in a 21-minute televised speech Monday night. The White House made it clear that Puerto Rico would not receive a “federal bailout” but expressed some support for an effort to allow the island’s public corporations to use federal bankruptcy protections.

As a United States commonwealth, Puerto Rico is not allowed to authorize bankruptcy, which means that impairing its debts could prove practically impossible. Padilla to elaborate on his interview with the New York Times, in which he said the island’s debts are “not payable” and that he would seek concessions from creditors. But the push in Congress for Chapter 9 faces stiff opposition from many Republicans, particularly conservatives, who say that allowing Puerto Rico to restructure its debts in bankruptcy would amount to a free pass for decades of fiscal mismanagement by local government officials. The island of 3.5 million people is grappling with a jobless rate double the national average and a debt load bigger than every U.S. state except California and New York.

The debate could have significant ramifications for the 2016 presidential elections, particularly in the critical battleground state of Florida, which has a growing population of people who have left Puerto Rico. The governor’s plan to ask bondholders to share in the island’s sacrifice came as investors are also weighing the possibility of a Greek default and exit from the euro zone.

The irony wasn’t lost on Puerto Rico’s creditors, many of them hedge-fund managers who spend their careers in their own game of “¿Quién Sabe Más?”—which translates to “who knows more?” The next budget includes a $300 million fund to repay Government Development Bank debt, although the bank will need additional legislative approval to access most of that money, Perello said. The price of some Puerto Rico general obligation bonds declined as much as 12 percent, to about 68 cents on the dollar, one of their largest declines in recent months, traders and analysts said.

Other bonds, such as sales-tax debt, are backed by different revenue streams. “Given the complexity of the different securities and the uncertainty of the future path of economic growth, we believe the debt restructuring process is likely to be protracted and legally contentious,” Ted Hampton, a Moody’s Investors Service analyst in New York, said in an e-mail. A restructuring of the island’s securities, which are tax-exempt nationwide, would inflict pain on investors such as hedge funds and some municipal bond mutual funds. Investors said the broad gains in the municipal bond market showed that Puerto Rico’s problems, while dire, would not lead to more systemic disruptions in the $3.7 trillion market that lends money to cities and states. “It is an overwhelmingly high-quality market,” said Hugh McGuirk, a vice president and portfolio manager at T. In restructuring, “the goal will be to achieve a negotiated moratorium with bondholders to postpone debt payments for a number of years, to allow that money to be invested here in Puerto Rico,” the governor said in his speech. Puerto Rico’s nonvoting member of the House of Representatives, Pedro Pierluisi, has sponsored a bill, the Puerto Rico Chapter 9 Uniformity Act of 2015, which would allow certain parts of the Puerto Rico government to seek bankruptcy protection.

The bill would let certain large public corporations on the island declare bankruptcy, allowing them to reduce debt with a current face value of about $25 billion, out of Puerto Rico’s total $72 billion of bonds. Puerto Rico’s financial problems may be confined to the island, but they are resonating with the roughly five million people of Puerto Rican descent living on the United States mainland.

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