{"id":27281,"date":"2015-05-20T00:31:40","date_gmt":"2015-05-19T22:31:40","guid":{"rendered":"http:\/\/www.w-t-w.org\/en\/?p=27281"},"modified":"2015-05-20T05:40:14","modified_gmt":"2015-05-20T03:40:14","slug":"27281","status":"publish","type":"post","link":"https:\/\/www.w-t-w.org\/en\/27281\/","title":{"rendered":"Puerto Rican Debt"},"content":{"rendered":"

Michelle Kaske writes: Puerto Rico and its agencies have amassed $72 billion of debt as the junk-rated island’s economy has shrunk every year but one since 2006. Investors bought the securities, which are tax-exempt in all U.S. states, for their relatively higher\u00a0yields. There are fewer residents to help repay the obligations: The island’s population has declined 7 percent in the past decade as residents\u00a0moved to the U.S. mainland.That combination of rising debt, sluggish economy, and falling population has pushed yields on Puerto Rico debt above those of Greece. The securities have been trading at distressed levels for nearly two years as investors doubted the commonwealth’s ability to repay its debt on time and in full. Puerto Rico warned in its latest quarterly filing that it may place a moratorium on debt payments in fiscal year\u00a02016 if the government can’t cut spending or raise enough revenue.<\/p>\n

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The island’s state-run power utility, Puerto Rico Electric Power Authority (Prepa) is\u00a0currently negotiating with creditors to potentially reduce its nearly $9 billion debt load. Such a restructuring would be the largest ever in the $3.6 trillion municipal bond market.<\/p>\n
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Winner: Law Firms<\/h2>\n

Unlike Detroit, Puerto Rico and its agencies can’t file for Chapter 9 bankruptcy protection. Without a clear legal blueprint, the process of guiding the island and its creditors through a workout agreement will take more time and legal wrangling. That means\u00a0lawyers for all the different parties\u2014bond holders, banks, bond insurance companies, and government entities\u2014will probably have to rack up lots of billable hours as they seek\u00a0the best outcome for their clients.<\/p>\n

Winner: Hedge Funds and Distressed-Debt Buyers<\/h2>\n

For nearly two years, hedge funds and investors in\u00a0riskier debt have been purchasing Puerto Rico securities at distressed levels. Meanwhile, traditional tax-exempt investors such as municipal mutual funds have reduced or eliminated exposure to the island.<\/p>\n

A group of 35 hedge funds, led by Fir Tree Partners and others, holds $4.5 billion of Puerto Rico debt. Firms that bought at a discount may make a profit on Puerto Rico entities that can either avoid a default or that offer recover rates higher than what the hedge funds originally paid to own the bonds.<\/p>\n

Governor Alejandro Garcia Padilla and legislative leaders last week agreed on a proposal to cut at least $500 million of spending\u2014following prior year reductions\u2014and boosted the sales tax to 11.5 percent, from 7 percent. To lower the commonwealth’s payroll, the governor has cut 12,500 jobs payable from the general fund, a 12 percent drop.\u00a0 Puerto RIco’s Debt<\/strong><\/a><\/p>\n

\"Puerto<\/a><\/p>\n<\/section>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Michelle Kaske writes: Puerto Rico and its agencies have amassed $72 billion of debt as the junk-rated island’s economy has shrunk every year but one since 2006. Investors bought the securities, which are tax-exempt in all U.S. states, for their … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":22,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[13],"tags":[],"class_list":["post-27281","post","type-post","status-publish","format-standard","hentry","category-finance"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t