Puerto Rico’s governor says island cannot pay back $70 billion in debt, is near …

29 Jun 2015 | Author: | No comments yet »

Bond Insurers Drop, Credit Risk Jumps on Puerto Rico Concern.

Puerto Rico’s governor believes the US territory’s US$72 billion public debt is unpayable, a spokesman confirmed late on Sunday, adding another blow to a world financial system already struggling with a possible default by Greece.

Governor Alejandro Garcia Padilla’s spokesman, Jesus Manuel Ortiz, confirmed that the Puerto Rican government is seeking to defer payments while negotiating with creditors. The comments make the insurers’ stock “unbuyable,” Mark Palmer, an analyst at BTIG LLC, said in a note Monday, cutting his recommendation on the shares to “neutral” from “buy.” “The uncertainty around this situation has multiplied to such an extent that it’s very difficult for us to recommend that investors get involved here,” Palmer said in a telephone interview. “The governor’s comments as they emerged last night represent a 180-degree change from where they had been a month ago.” Assured Guaranty had $4.9 billion of par exposure to Puerto Rico and its agencies as of March 31, according to a regulatory filing. Puerto Rico’s bonds had been popular with US mutual funds because they were tax free, but the island’s debt was gobbled up by hedge funds, which were attracted by falling credit ratings. “The markets are clear that Puerto Rico is heading to a direction of a restructuring or default,” said Jose Villamil, a former UN consultant, adding that a voluntary restructuring by bondholders might be the best option, AP reported. “The last four administrations have kicked the can down the road,” said Villamil. “At this point, there is no more can to kick.

MBIA’s National Public Finance unit “will continue to work with the appropriate parties toward a solution that addresses Puerto Rico’s significant fiscal and operational difficulties while respecting the rights of creditors,” Kevin Brown, a spokesman for the Armonk, New York-based insurer said in an e-mailed statement. “National will ensure that its policyholders will continue to receive all of their scheduled interest and principal payments on time and in full.” Credit-swaps tied to Assured Guaranty Municipal Corp. jumped 70 basis points to 441 basis points and earlier reached 461, the highest since January 2014, according to data provider CMA. It’s going to hurt, but there’s no way out.” These strict measures may include calls for budget cuts of $674 million and setting aside $1.5 billion to pay off debts. If the governor seeks to not pay the debt at all, it will require a referendum and a vote on a constitutional amendment, said Puerto Rican Representative Jenniffer Gonzalez, spokeswoman for the main opposition party.

The budget needs to be approved by the island’s government on Tuesday. “I think it’s irresponsible,” said Republican Jenniffer Gonzalez. “He met privately with the New York Times last week, but he hasn’t met with the leaders of this island.” Gonzalez added that Puerto Rico’s constitution mentions the debt has to be paid before any other financial obligations can be met. If not, we will be in a death spiral.” In April 2014, Puerto Rico contemplated more than a hundred different proposals intended to jumpstart its sagging economy, including legalizing prostitution and marijuana use. Garcia Padilla recently confirmed that he had considered having his government seek permission from the US Congress to declare bankruptcy amid a nearly decade-long economic slump. Nearly 370 different ideas to dig the government out of $70-billion debt were submitted, and lawmakers picked out 156 of them for further consideration. The company is facing a restructuring as the government continues to negotiate with creditors as the deadline for a roughly US$400 million payment nears.

Garcia Padilla has taken several measures to help generate more government revenue, including signing legislation raising the sales tax to 11.5 percent and creating a 4 percent tax on professional services.

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