As it turns out, on the day the House announced that it planned on taking up the Puerto Rico bill next week, a 17 member audit commission found that two debt issues worth $4.4 billion of the $72 billion in debt outstanding were unconstitutional.
LITTLE ST. JAMES, U.S. Virgin Islands (INTELLIHUB) — If you can name it — it has likely taken place this the lavish private island off the coast of Puerto Rico which boasts a beautifully landscaped plush luxury estate complete with its own helipad, privy only to certain members of the global elite.
Owned by Jeffery Epstein, a wealthy American financier and convicted sex offender, Little St. James Island appears to be somewhat of a gathering place and is a well desired hangout among key figureheads, actors and royalty to the likes of former U.S. President Bill Clinton, Kevin Spacey and even Prince Andrew.
However, the people attending the lavish residence are likely do not go there to discuss “cutting edge scientific and medical research” as the Epstein VI Foundation would like you to believe, but rather go there to experience full-on sexual encounters with underage girls as young as fourteen.
It turns out that Puerto Rico’s plan to default on its debt and beg congress for help is working out as planned.
After a slight delay, House Republicans have reached an agreement with the Obama administration to provide a path to restructure Puerto Rico’s $70 billion debt load. The bill would offer the island a legal out similar to bankruptcy and wouldn’t commit any federal money according to the WSJ.
In an interview with Wolf Blitzer, Donald Trump said that although he is the “king of debt”, and that he “loves debt”, he wouldn’t bail out Puerto Rico.
Responding to whether or not Trump would bail out Puerto Rico as president of the United States…
“No I don’t believe they should, and I think frankly Puerto Rico is better if they don’t because they’ll cut the bonds, they’ll cut them way down there’s far too much debt. The problem with Puerto Rico is they are far, far too much in debt. Don’t forget, I’m the king of debt, I love debt“
As far as how he would suggest Puerto Rico solve its debt issue, The Donald, of course, has a solution for that.
Update: PR Governor Padilla has spoken…
- *PUERTO RICO GOVERNOR SAYS WON’T PAY DEBT TOMORROW
- *PUERTO RICO GOVERNOR SAYS ISLAND WON’T PAY DEBT MONDAY
- *PUERTO RICO GOVERNOR: GOVERNMENT SIGNED MORATORIUM BILL YESTERD
- *PUERTO RICO NEEDS DEAL W/ CREDITORS AND/OR CONGRESS: GARCIA
And of course, demands a bailout…
- *PUERTO RICO GOVERNOR CALLS ON U.S. CONGRESS, PAUL RYAN FOR HELP
And then threatens…
The Puerto Rican Senate and the House of Representatives have both passed an emergency declaration authorizing the governor to suspend payments on $72 billion in public debt — setting up a dramatic showdown between Puerto Rico and hedge funds amid the island’s historic debt crisis. The bill authorizes the Puerto Rican governor to “protect the health, security and public welfare … [by] using government funds first and foremost for public services.” The dramatic move comes one day after a group of hedge funds sued to freeze the assets of Puerto Rico’s Government Development Bank in efforts to stop the bank from spending money on the island that the hedge funds want to go toward upcoming debt payments.
* * *
“The new levy raised the estimated cumulative income tax on Wal-Mart Puerto Rico Inc. to an astonishing and unsustainable 91.5% of its net income!”
Earlier today, we noted that it was decision time for Puerto Rico.
Staring down a $354 million debt payment, Governor Alejandro Garcia Padilla had to decide between defaulting on $273 million in GO debt (the portion of the payment guaranteed by the National Public Finance Guarantee Corp.) and holding onto cash the government needs to provide public services for the island’s citizens.
Puerto Rico has a problem. The commonwealth needs to make a $354 million bond payment on Tuesday and the government is basically out of money.
We previewed this rather precarious situation twice in the last two weeks (see here and here), noting that this time is indeed “different.” Why? Because unlike August when the island paid only $628,000 of a $58 million payment (so, just about 1%), a large portion of what’s due Tuesday is GO debt guaranteed by the National Public Finance Guarantee Corp. A default on that spells litigation.
A default “would likely trigger legal action from creditors, commencing a potentially drawn-out process absent swift federal intervention,” Moody’s warned last month.
As a refresher, here’s a bullet point summary of recent developments from BofAML:
– Puerto Rico To Run Out Of Cash By Year End, Faces $13 Billion Shortfall (ZeroHedge, Sep 9, 2015):
Remember when two months ago Schauble, jokingly, offered Jack Lew to “trade” Greece for Puerto Rico? Something tells us in the interim period the German finmin changed his mind because while the Greek can has been kicked again, if only for the time being until bailout #4, the full severity of the Puerto Rican insolvency was laid out for all to see moments ago when top officials and outside advisors to the commonwealth released a highly-anticipated report showing that island’s whopping funding gap of $28 billion will at best be reduced to “only” $13 billion over the next several years. Worse: according to the report of the so-called Working Group, the Treasury’s single cash account and Government Development Bank would exhaust available liquidity before the end of the year…
– First Default By U.S. Commonwealth In History: Puerto Rico Fails To Make Required Debt Payment (ZeroHedge, Aug 3, 2015):
Over the weekend Puerto Rico was supposed to make a modest principal and interest payment of some $58 million due on Public Finance Corp. bonds, which however few expected would be satisfied. As a reminder, on Friday, Victor Suarez, the chief of staff for Governor Alejandro Garcia Padilla, said during a press conference in San Juan that the government simply does not have the money.
Moments ago Melba Acosta, president of the Government Development Bank, confirmed as much, when he announced that only $628,000 of the $58 million payment, or just about 1%, had been paid.
Below is the full statement from Acosta on the service of PFC Bonds:
– Puerto Rico Announces Bond Payment “Moratorium” (ZeroHedge, June 29, 2015):
Having concluded last night that Puerto Rico debt is “unpayable,” and that his government could not continue to borrow money to address budget deficits while asking its residents, already struggling with high rates of poverty and crime, to shoulder most of the burden through tax increases and pension cuts, Padilla confirmed tonight that: PUERTO RICO TO SEEK “NEGOTIATED MORATORIUM”, ‘YEARS’ OF POSTPONEMENT IN DEBT PAYMENTS. Likening his state’s situation to that of Detroit and New York City (though not Greece), Padilla concluded, the economic situation is “extremely difficult,” which is odd because just a few years ago when they issued that bond – everything was awesome?
– Here Comes “Prexit”: Puerto Rico In “Death Spiral”, Debts Are “Not Payable”, Governor Refuses To “Kick The Can… (ZeroHedge, June 28, 2015):
As we noted last night, for a whole lot of time nothing at all can happen under the guise of “containment”… and then everything happens all at once. Because not even two full days after Greece activated the “Grexit” emergency protocol, leading to capital controls, and a frozen banking system and stock market, moments ago the NYT reported that the default wave has jumped the Atlantic and has hit Puerto Rico whose governor Alejandro García Padilla, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.
– Puerto Rico’s 3rd Largest Bank Fails (ZeroHedge, Feb 27, 2015):
Based on Bloomberg data, Doral Bank is the 3rd largest (by assets) bank in Puerto Rico…or rather was. After a 58% collapse in the share price today, news broke after the close:
*PUERTO RICO’S DORAL BANK PLACED UNDER FDIC RECEIVERSHIP, BANCO POPULAR AGREES TO BUY DORAL BANK OPERATIONS
It appears Non-Performing Loans were over 40%. Popular will take the deposits (and 8 of Doral’s 26 branches) and the FDIC eats the bad debt (estimates to cost the Deposit Insurance Fund (DIF) will be $748.9 million).
– Puerto Rico – America’s Version of Greece? (ZeroHedge, Feb 15, 2014):
The Crisis Worsens
We previously discussed Puerto Rico in these pages in October of last year (see “Puerto Rico’s Debt Crisis – Another Domino Keels Over”). At the time, the public debt crisis looked increasingly worrisome – in fact, it seemed as though Puerto Rico would eventually have to apply for a federal bail-out, and if it failed to get one, it might have to restructure its debt (it actually cannot do that, see further below). Several months have now passed and the situation apparently hasn’t gotten better. Before we continue, allow us to point out though that noted contrarian Jeff Gundlach thinks that Puerto Rico will eventually be rescued – he believes that too many politicians have a vested interest in not letting anything bad happen:
“Municipal bonds are slightly overvalued, he said. Investors who are willing to tolerate volatility will get rewarded for the risk in Puerto Rico’s bonds. Too many politicians rely on votes tied to the stability of Puerto Rico to allow a crisis there, according to Gundlach. “Puerto Rico’s bonds are going to make it to the other side of the valley,” he said.”
– When countries go broke (Sovereign Man, Oct 14, 2013):
It’s become almost cliche these days to point out how many governments are broke beyond belief.
In Japan, where the country’s debt level already exceeds 200% of GDP, the government has to finance 46% of its budget by issuing more debt.
– Kyle Bass Warns “There Is No Way To Protect Yourself If US Treasuries Default” (ZeroHedge, Oct 9, 2013):
“If the politicians lead us into a ‘prioritization of payments’ situation for Treasury Secretary Lew or an actual missed payment, there is nothing you can do to protect yourself from that!” are the ominous words that Kyle Bass uses to describe the farce that is rapidly approaching (and for now being ignored by stocks). Bass went on to pull no punches in his “disappointment” in JCPenney’s performance (and dilution) coming as close as he can to saying “sell.” But his piece de resistance was a dismal destruction of any silver lining for Puerto Rico and the significant implications that will have on Muni bonds in general.
On Default risk and “Un-hedgeable” implications:
On JCPenney – “Disappointed” – “didn’t belive they needed to raise the capital… and now they have diluted us over 30%”
On Puerto Rico and the threat to the entire Muni market – “you look at their finances and you can only say – I have no clue how this can exist for very much longer”
– Detroit ‘Contagion’ Spreads; Widely-Held Puerto Rico Muni Bonds Collapse (ZeroHedge Sep 10, 2013):
“It’s getting concerning,” notes one fixed-income banker, Puerto Rico muni bond yields “never got near 10% [yields] even in the crisis.” Some of the 27-year maturity Puerto Rico bonds just traded at a dismal 67 cents on the dollar (10.082% yield) and the most recently issued 2036 Electric Power bonds have collapsed from par a month ago to just above 82 cents on the dollar today. As the WSJ reports, the fall in prices also is a sign of investor risk aversion in the wake of Detroit’s record municipal-bankruptcy filing in July; but it seems the anxiety and outflows from ETFs is having just as big an impact as Puerto Rico bonds now trade cheaper than Detroit’s. “It’s out of whack,” one analysts warns, though the island’s double-digit unemployment and recent weakness in economic indicators somewhat support the concerns – and while the “yields are attractive” it is possible that the island’s borrowing costs could go higher as supply is extremely heavy in coming months. With 77% of managers holding Puerto Rico bonds, this is a problem…
Puerto Rico debt is a flash point in the municipal-bond market, because the island is a prolific debt issuer and its bonds are widely held. About 77% of U.S. mutual funds hold some sort of Puerto Rico debt, according to Morningstar. The island’s bonds are attractive to investors because they offer relatively high yields, and unlike most other municipal debt, interest on them is exempt from federal, state and local taxes.
I do not say this lightly…. BE PREPARED for a large quake in the Caribbean earthquake in the near term… next few weeks to a month at the most. 6.0 or greater… along the southern plate boundry east from mexico to Puerto Rico.
have a plan in place for escape to higher ground in case a tsunami is generated by the plate slippage that is happening worldwide.