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    Entries in Puerto Rico (9)

    Thursday
    Jul142016

    Puerto Rico's Warning for States, Cities: You Might Be Next

    Gov. Alejandro Garcia Padilla said the island's rescue might simply be a harbinger of things to come on the mainland.
    BY  JULY 14, 2016

    President Obama recently signed into law a highly anticipated -- and much debated -- rescue bill for debt-laden Puerto Rico. While the bill has its detractors, it marks a positive step toward the promise of recovery for the island. But the bill's impact could go far beyond the commonwealth's shores.

    Puerto Rico, like states and many cities, can't legally declare bankruptcy. Saddled with $70 billion in debt, Gov. Alejandro Garcia Padilla's administration has spent the last few years unsuccessfully trying to reach an agreement with creditors. During that time, the commonwealth watched its tax base decline as residents fled stateside and Puerto Rican government entities defaulted on debt.

    That's what life without bankruptcy protection is like for governments, Padilla said this week in a speech at the Brookings Institution in Washington, D.C. He went on to suggest that Puerto Rico, with its smaller economy and population size, might simply be farther along on a path other U.S. governments are also traveling. "We are only ahead of the curve -- the curve that looms for many states and municipalities," he said. "We are forced to try the route that others have not tried before, to knock on the doors that others may need to approach in the not-so-distant future."

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    Friday
    Jul012016

    The Week in Public Finance: Rescuing Puerto Rico, Brexit Fallout and Minimum-Wage Trends

    A roundup of money (and other) news governments can use.
    BY  JULY 1, 2016

    Puerto Rico’s New Path

    Congress this week has reached an agreement on a rescue bill for Puerto Rico. The troubled territory is set to default for a third time over the past year on a debt payment due today. The legislation, which was signed by President Obama Thursday, follows a long-running debate about whether Congress should intervene at all.

    The bill, called the Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA, passed the House of Representatives earlier this month and the Senate on Wednesday. The legislation would allow the island a path to restructure its more than $70 billion in debt while installing a financial control board to govern its finances. It was modeled after similar legislation for Washington, D.C., whose finances were also subject to a control board two decades ago.

    The Takeaway: The legislation won’t stop Puerto Rico from defaulting on its $2 billion debt payment Friday. But the fact that it now has a path to solvency -- however murky and long -- delivers a message of certainty to municipal market investors. To be sure, investors will take a hit and Puerto Rico’s officials will lose immediate control of the island’s financial future. But the process will be far more orderly than it has been in the past year or so. Litigation promised “to be endless and to consume scarce resources of the beleaguered commonwealth’s government," former New York Lt. Gov. Richard Ravitch pointed out in an op-ed this week

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    Friday
    Jun242016

    The Week in Public Finance: What Brexit Means for Muni Bonds, Pension Projections and More

    A roundup of money (and other) news governments can use.
    BY  JUNE 24, 2016

    What Brexit Means for the Municipal Bond Market

    On Thursday, Britain voters shocked the world by deciding to exit the European Union in a vote that became known as "Brexit," a combination of Britain and exit. The result, which prompted Prime Minister David Cameron to say he will step down in the coming months, has implications for global financial markets, which in turn can affect the U.S. municipal market.

    Even before the results of the vote were in, the uncertainty of the outcome was affecting markets everywhere. Global stocks and some corporate bonds had slumped while demand for traditionally safer assets like U.S. Treasuries and municipal bonds had “soared,” according to Ivan Gulich, senior vice president of the financial firm Loop Capital Markets.

    This increased demand for municipal bonds has driven down interest rates, which is good for governments looking to borrow money. For example, the interest rate on a 30-year Treasury bond is currently lower than it was even in the wake of the Lehman Brothers' 2008 bankruptcy that roiled the corporate market and drove demand toward government securities.

    “What was initially seen as an issue for Europe has rattled markets around the world,” wrote Gulich this week in an analysis.

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    Friday
    May272016

    How Zika Could Infect the Municipal Bond Market

    Even if an area has no cases of the virus, it could feel a financial impact.
    BY  MAY 27, 2016

    When you walk through Atlanta's Hartsfield-Jackson International Airport, it’s hard to ignore the solemn warnings that the city could be an entry point for the Zika virus into the United States.

    Everywhere, large signs picturing a menacing mosquito warn travelers: “Don’t let this bad bug bite you.” Other signs warn pregnant travelers about a Zika health advisory. Last month, airport concessionaires began selling insect repellent with the recommended level of DEET to keep mosquitoes at bay.

    But there are also financial implications of Atlanta’s status as a gateway to Central and South American travel, and for other cities like it. According to a new report by the investment firm, Loop Capital Markets, the Zika virus could make it more expensive for some municipalities to borrow money.

    That's because similar to natural disasters, a virus outbreak has the potential to overwhelm local and state health departments. In 2005, Hurricane Katrina "demonstrated the enormous capacity of governments to botch disaster relief efforts,” said Chris Mier, the report's author. Since then, research has shown that a region's susceptibility to disasters now plays a role in their municipal interest rates. For example, a study of California's more earthquake-prone cities found that they paid a higher interest rate on their bonds following Hurricane Katrina.

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    Friday
    Apr292016

    The Week in Public Finance: Broke Puerto Rico, Slow Financial Disclosures and Trouble in Kansas

    A roundup of money (and other) news governments can use.
    BY  APRIL 29, 2016

    Broke in Puerto Rico

    Congress stalled this week on legislation that could help Puerto Rico restructure its debts. That leaves the financially strapped U.S. territory continuing to try and piece together agreements with its creditors.

    The commonwealth’s next debt payment, which is nearly a half-billion dollars in securities, is due Monday, and it's expected to default. There are reports that Puerto Rico’s main financing arm is negotiating a deal with creditors to pay slightly less than half of what is owed. But even so, credit rating agencies still view such negotiated cuts as a default on debt.

    Puerto Rico, however, won't get out of its jam with a series of deals. In total, the territory owes about $70 billion in debt that it can’t pay.

    Congress is considering installing a federal oversight board, among other financial reforms, but lawmakers this week said they don’t expect to move on that legislation until July. Absent a federal oversight board, Puerto Rico is vulnerable to lawsuits from creditors. If that happens, that would likely drag down any restructuring process even further, according to an analysis this week by Moody’s Investors Service.

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