Puerto Rico Will Default on Government Development Bank Debt

[WestVirginiaRebel]

Bloomberg:

Puerto Rico will default on a $422 million bond payment for its Government Development Bank, escalating what is turning into the biggest crisis ever in the $3.7 trillion market that state and local entities use to access financing.

 

Governor Alejandro Garcia Padilla invoked a debt moratorium law approved last month, saying during a televised address Sunday that the commonwealth needs to focus on providing essential services. The bank, already operating under an emergency period, had until the end of Monday to make the payment.

“Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice,” Garcia Padilla said during his 10-minute speech. “I decided that essential services for the 3.5 million American citizens in Puerto Rico came first.”

 

The GDB missed payment may open the door to larger and more consequential defaults on general-obligation bonds, which are protected by the island’s constitution. Puerto Rico and its agencies owe $2 billion on July 1, including $805 million for general obligations. It also could imperil slow-moving efforts by U.S. lawmakers to resolve the biggest crisis ever in the tax-exempt market.

 

Puerto Rico officials have been negotiating with creditors to defer payments. No matter which route Puerto Rico took, credit-rating companies saw a default as inevitable. Moody’s Investors Service analysts said last week that any non-payment, even if it’s agreed to by creditors, constitutes a default in their eyes. S&P Global Ratings said a distressed debt exchange or temporarily withholding interest is synonymous to default.

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Default lies not in our stars, but in bad leadership.

[SrWoodchuck]

Such a shock! Democratic rule worked so well in Detroit, Baltimore & Chicago...or is it the Democratic policy of enlightened socialism & crony capitalism that resembles that great suck-cess, Venezuela?

[Valin]

Another Default for Puerto Rico
Walter Russell Mead
May 2 2016

(Snip)

There are two kinds of crisis: there’s the largely unexpected event that hits suddenly like an earthquake or the assassination of a leader. And then there is the kind of slow moving train wreck that we see in Puerto Rico. The approach of bankruptcy was not secret. The trends in public debt, sluggish growth, bad government and counterproductive federal policy have been visible for years. It was only a question of time.

This leaves us less sympathetic to bondholders than we might otherwise be—certainly large investors who bought Puerto Rico debt knew or should have known that this was risky speculation rather than prudent investment. We don’t blame them for wanting to be paid in full, but they got into this with their eyes open, and knew very well that Puerto Rico didn’t have the money to keep the promises it was making.

However, the real issue here is why Congress and the Executive Branch of the United States failed to foresee and provide for this slow-moving catastrophe. This wasn’t an unexpected explosion of a long dormant volcano. This was more like the captain and crew of a ship watching the slow, stately approach of an iceberg and taking no action until it crushes into the ship.

 

(Snip)