Proposed federal legislation that would help Puerto Rico restructure its $70 billion of debt could lead to full repayment of general obligations, which would be a boon to bondholders and insurers, according to Height Securities.
A draft measure by House Republicans that has circulated on Capitol Hill would give a five-member federal control board the authority to oversee a reduction of the island’s debts, instead of entrusting that to local officials, and empower it to sell debt on behalf of the island. With such a structure in place, losses on general obligations would be zero, and sales-tax bonds would be cut just 10 percent, down from earlier estimates of 10 percent and 45 percent, respectively, according to a report released Tuesday by Height, a Washington-based broker dealer.
“The key element of the bill is the limitations on debt restructurings, which should protect general obligation and Cofina bondholders,” wrote Edwin Groshans, an analyst who tracks municipal-bond insurers at Height. The bill, the bulk of which has a 75 percent chance of becoming law, is “a positive for creditors as it creates a strong federal oversight board and protects bondholders vis a vis pensioners,” he wrote.
The draft bill from the House Natural Resources Committee, which the panel plans to release publicly Tuesday, is the most comprehensive fix yet advanced by Congressional Republicans to help pull Puerto Rico from a crisis that’s been building since June, when Governor Alejandro Garcia Padilla said its debts aren’t payable. It allows for a court-overseen restructuring to force creditors to accept a deal, in contrast to the current consensual negotiations, though it doesn’t specify how various bondholders would be treated.
Trading in Puerto Rico show that investors aren’t anticipating that they’ll be paid back on time and in full. The commonwealth’s benchmark general obligations with an 8 percent coupon and maturing in 2035 traded Tuesday at an average 70.3 cents on the dollar, data compiled by Bloomberg show. Sales-tax backed debt due in 2042 traded Monday for 42 cents.
Ambac Financial Group Inc. would benefit the most from the legislation because it insures about $7.3 billion of sales-tax debt service payments, according to Height. Overall, Ambac’s losses from paying investors would decline by 26 percent, while MBIA Inc.’s would fall by 18 percent and Assured Guaranty Ltd.’s would drop 6 percent relative to the firm’s moderate-loss scenario.
American and Puerto Rican flags fly outside the Senate of Puerto Rico building in San Juan, Puerto Rico, Aug. 14, 2015.
Senator Schumer asked unanimous consent that the Senate take up and pass S.1774 , Puerto Rico Chapter 9 Uniformity Act of 2015. Senator Hatch objected. Unofficial Transcript : SCHUMER: I AM GOING TO ASK FOR A UNANIMOUS CONSENT REQUEST BUT SPEAK FOR A COUPLE OF MINUTES AND ENGAGE IN SOME DISCUSSION WITH MY DEER FRIEND, THE SENIOR — MY DEAR FRIEND, THE SENIOR SENATOR FROM THE STATE OF UTAH. I WANT TO THAIPG HIM FOR COMING TO THE FLOOR TODAY ON THIS ISSUE. I’M — ON PUERTO RICO. I AM HEARTENED HE HAS EXPRESSED INTEREST IN WORKING WITH US TO GET DOES ON TO HELP OUR FELLOW CITIZENS IN PUERTO RICO. I ALSO WANT TO THANK MY FRIENDS, THE SENATORS FROM CONNECTICUT, NEW JERSEY, OREGON, WASHINGTON, ILLINOIS, AND MY COLLEAGUE FROM NEW YORK WHO IS HERE FOR THEIR STEADFAST SUPPORT FOR HELPING PUERTO RICO IN THIS TIME OF CRISIS. I RISE TODAY DEEPLY TROUBLED BY THE DIRE ECONOMIC, FINANCIAL, AND HEALTH CARE SITUATION IN PUERTO RICO. THE ISLAND IS FACING A FINANCIAL CRISIS, A HEALTH CARE ...
Treasury Secretary Jack Lew recently visited Puerto Rico in an effort to show the administration’s support for the beleaguered territory. Lew’s comments on his trip to San Juan and his January 15 letter to House Speaker Paul Ryan (R-Wis.) make it clear that when it comes to Puerto Rico, the administration largely equates “support” with “bankruptcy.” The administration’s well-intentioned desire to help the people of Puerto Rico is laudable, but it is a mistake to give Puerto Rico the power to rewrite its laws and contracts through a retroactive application of new bankruptcy laws. The administration’s position is neither good policy for Puerto Rico nor the United States. Ambac is one of the country’s largest guarantors of municipal and state debt. In Puerto Rico, we insure well over $2 billion of the Commonwealth’s various debt obligations, and our commitments to the island extend until the year 2054. Our financial support of the Commonwealth helped build i...
A new report from the World Bank just landed, finding that a record low of 10% of humanity now live in extreme poverty, down from 11% in 2013. But poverty rates aren’t anywhere close to equal between continents or even countries, as our new series of maps clearly demonstrates. The World Bank provides an in-depth explanation for its methodology, which you can find in Appendix A of the full report here . We focused on the percentage of people in each country living below what the World Bank defines as extreme poverty, or $1.90/day. We’ll let the researchers defend this definition on their own, but there is one caveat to keep in mind. It can be extraordinarily difficult to collect reliable data from so many countries on a regular basis, and in fact we used the latest year in which numbers were available whenever possible. For example, in some of these maps we compare 2011 figures against 2015. In short, our maps provide the clearest possible apples-to-apples compa...
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