States like California and Illinois are suffering from “pension paralysis” while Puerto Rico, an unincorporated U.S. territory, is suffering from declining population and failure to reduce government spending accordingly.
(Bloomberg) Puerto Rico bonds are in the midst of the biggest three-day rout since April 2016, when island officials advanced a moratorium bill that paved the way for the first default on its general-obligation debt, according to data compiled by Bloomberg. The selloff was triggered by the federal oversight board’s approval of a fiscal recovery plan Monday that covers less than a quarter of the debt payments due from 2018 through 2026. That leaves bondholders facing steeper losses than they did under the governor’s previous proposal.
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According to the New York Times, Puerto Rico, Mired in Debt, Has a New Rescue Plan (or yet another plan!).
Puerto Rico, reeling from a debt crisis lasting more than a year, reached an agreement Monday that should set the stage for meaningful talks with its creditors, who hold more than $70 billion of defaulted debt.
Under the agreement, new taxes will be imposed but public workers will be spared from furloughs for now, a measure that had been on the table.
The island’s federally appointed oversight board voted unanimously to approve an amended plan, submitted by Gov. Ricardo Rosselló, for restoring fiscal solvency over the next 10 years. Approving the governor’s plan spared the seven-member board from having to impose an austerity plan that probably would have caused an outcry on the island.
“It’s essentially the same plan I submitted, except for the economic baseline numbers,” Mr. Rosselló said in a telephone interview after the meeting. “The board approved our plan, conditioned on us meeting some milestones.”
Those “milestones” remain significant hurdles for the island’s government. But while the government works to meet them, it can now show creditors a board-certified document explaining how much cash is available to repay the large debt, and where the cash is going to come from.
As the island’s financial troubles have worsened in recent years, its audited financial statements and cash flow reports became unavailable, making meaningful restructuring talks impossible. And time was running out. Under a special federal law for insolvent United States territories, Puerto Rico has court protection from its creditors until May 1. Some have already tried to sue to recover their money.
The governor’s fiscal plan includes enough belt-tightening to cause an annual economic contraction of 2 to 3 percent — a bite that residents of the island will almost certainly resent. But that is nothing like the 17 percent economic contraction the board had warned about earlier this year, in a document describing a worst-case scenario.
To get the board’s provisional approval, Mr. Rosselló said he had to find ways to come up with $160 million more in government revenue than he had in a previous version of the plan, which was rejected by the board Thursday. The oversight board warned him then that his original version was “unrealistic,” leading to marathon discussions over the weekend.
Time to kick back and wait for yet another unrealistic rescue plan. And watch hedge funds fight Puerto Rico over their rescue plan.
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