Puerto Rico governor seeks to delay debt payments

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. Alejandro García Padilla laid out a plan to seek restructuring of the government’s approximately $72 billion in debt, while also vowing to make Puerto Rico more economically competitive. 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.

A key point in the proposal is to get permission for Puerto Rico to go through bankruptcy as Detroit did in 2013, something that current law prohibits. “It is time for us to ask for concerted actions from Washington, in one voice, now. 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. He described the “ultimate goal” as being “a negotiated agreement with bondholders for a postponement of payments on the debt for a number of years.” He called on the creditors to “assume shared sacrifices,” while warning that “those who attempt to exploit this situation to gain a financial or political advantage” would find that “Puerto Rico will be united against you.” The governor’s speech came the same day as a report by former World Bank and International Monetary Fund economists outlined the Puerto Rican commonwealth’s dire financial position. 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.

Also Monday, former U.S. judge Steven Rhodes — who oversaw the Detroit bankruptcy and was recently appointed as an advisor to Puerto Rico — echoed earlier comments by García Padilla that the territory was insolvent. “It can no longer pay its debts, it will soon run out of cash to operate, its residents and businesses will suffer,” Reuters quoted Rhodes as saying. 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 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. In a related development, Fitch Ratings cut Puerto Rico’s general-obligation debt rating further into speculative or “junk” territory earlier Monday, to CC from B, warning of possible future downgrades.

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. Puerto Rico officials and their lawyers proposed that the Treasury guarantee some of the island’s bonds to lower its borrowing costs, people briefed on the matter said. 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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