The ongoing feud between Puerto Rico and its mostly hedge fund creditors is promptly shaping up as the next "Argentina", where "vulture investors" may well end up holding the island commonwealth hostage for years, during which time, however, they won't get paid.
Height Securities’ Daniel Hanson is “deeply skeptical” about the viability of Puerto Rico’s proposal for restructuring the island’s $70 billion in debt.
Hanson, in a note out late last week, said Governor Alejandro Padilla was “significantly unlikely” to present a “credible” plan and that the commonwealth’s offer to creditors may be “laughably low.”
As a reminder, Puerto Rico defaulted on some of its non-GO debt last month, presaging more missed payments this year as creditors come calling in May and July.
Early last month, just as Puerto Rico Governor Alejandro García Padilla traveled to Capitol Hill in an ill-fated effort to convince lawmakers that the island’s various bankrupt public entities should be allowed to utilize US bankruptcy laws, PREPA (the commonwealth’s heavily indebted power utility) was busy cementing the largest restructuring in muni market history.
On December 1, Puerto Rico governor Alejandro Garcia Padilla was staring down a $354 million debt payment he couldn’t make.
If the commonwealth defaulted on the GO portion, a cascade of messy litigation would follow and the island’s reputation with creditors would suffer irreparable harm.
That afternoon, on the heels of a visit to Capitol Hill where the governor attempted to explain to Congress why Puerto Rico should be allowed to take advantage of bankruptcy laws, the island made the payment, avoiding default.
As Wilbur Ross so eloquently noted, for Puerto Rico "it's the end of the beginning... and the beginning of the end," as he explained "Puerto Rico is the US version of Greece." However, as JPMorgan explains, for some states the pain is really just beginning as Municipal bond risk will only become more important over time, as assets of some severely underfunded plans are gradually depleted.
Wilbur Ross discusses Puerto Rico's debt struggles and where it goes from here...
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