Puerto Rico Will Not Be Able to Make Debt Payments

[7thave btn 31stn33rd st]

Q&A: Puerto Rico's Debt Crisis Explained

By ken sweet, ap business writer

NEW YORK — May 1, 2016, 8:31 PM ET

Puerto Rico's debt crisis reached a new level late Sunday, when the island's governor said Puerto Rico would not pay most of its $470 million in debt payments that are due by Monday.

Island officials spent the weekend trying to negotiate a settlement that would have avoided the default. The development comes as Congress has so far been unable to pass a debt restructuring bill for Puerto Rico.

"Let me be very clear, this was a painful decision," Gov. Alejandro Garcia Padilla said in a speech, saying the government could not make the payment without sacrificing basic necessities for the island's 3.5 million residents.

This default is by far the largest by Puerto Rico, who has been struggling under the weight of $72 billion in debt that its officials say it cannot pay. Here's a breakdown of what has already happened to Puerto Rico and why it matters to individual investors.

HOW DID PUERTO RICO GET INTO THIS MESS?

Puerto Rico has been in an economic recession for roughly 10 years, caused by several factors. Manufacturing jobs started leaving the territory after certain tax credits, officially known as Section 936, expired. The global economic downturn that started in 2007 only compounded the negative impacts on Puerto Rico.

As a result, the territory's unemployment rate is 12.2 percent, more than double the 5 percent unemployment rate for the U.S. Its poverty rates are the highest in the nation. Residents have been leaving the territory in search of new economic opportunities.

To cover budget shortfalls, Puerto Rico's government started borrowing heavily from a mix of mutual funds and hedge funds, and its debt levels ballooned to $72 billion. Its debt levels have become so large that the government is unable to pay its debts and provide basic government services. Roughly a third of Puerto Rican tax revenue now goes to cover its debt.

WHY WOULD INVESTORS LEND SO MUCH MONEY TO THEM?

One reason is U.S. tax laws. Due to Puerto Rico's legal standing as a territory of the U.S., its bonds are considered exempt from income tax to residents of all 50 states. That made its bonds attractive to investors outside of Puerto Rico.

WHY CAN'T PUERTO RICO GO INTO BANKRUPTCY LIKE DETROIT?

Since Puerto Rico is not a state, it is unable to access what's known as Chapter 9 of the U.S. Bankruptcy Code. There are current bi-partisan discussions to change this in Congress, but the bill is currently stalled in committee.

SO PUERTO RICO HAS DEFAULTED BEFORE. WHY DO THESE DEFAULTS MATTER MORE?

As Puerto Rico took out more debt, it organized its bonds into increasingly complex vehicles that have a myriad of funding sources and legal structures. However, the debt tends to fall under two broad categories: bonds considered by investors to be constitutionally protected and those that are not.

The debt that Puerto Rico defaulted on earlier this year, roughly $37 million in bonds issued under the Puerto Rico Infrastructure Financing Authority, were considered low priority bonds by the government and not backed by the constitution. The bonds that Puerto Rico plans to default on May 1 are considered middle priority bonds, issued by a struggling entity known as the Government Development Bank.

The big issue is the bonds coming due this summer. Some of these bonds, due July 1, are considered what's known as general obligation bonds issued directly by Puerto Rico's government and are constitutionally protected. A default of general obligation bonds would be considered a more serious default by investors, and would likely result in Puerto Rico going into legal limbo.

AND WHY WOULD THAT BE BAD?

Once a default on the general obligation bonds were to occur and without the ability to go into bankruptcy, the only avenue investors will have to resolve their differences would be the courts, a process that could take years. Also a group of investors, mainly hedge funds, have bought up distressed Puerto Rican debt and are fighting to get higher pay outs that likely would not happen if Puerto Rico had access to the U.S. Bankruptcy Courts.

Remaining in legal and financial limbo would likely push the island's economy into even steeper economic turmoil. The courts could also rule that Puerto Rico is legally obligated to pay all its bonds, despite being unable to make ends meet, forcing the government to cut basic services.

WHAT IS CONGRESS DOING TO HELP?

The bill currently in discussion would create a board to help manage the island's debt and to oversee some restructuring. House Speaker Paul Ryan has said he is staunchly opposed to a bailout, but also said the U.S. could ultimately be responsible if Congress doesn't act soon to prevent further problems.

IS MY BOND PORTFOLIO AT RISK?

Most bond funds have already sold their Puerto Rican debt, and it's now mostly owned by hedge funds. But there are two mutual fund companies who still own parts of the commonwealth's debts: Oppenheimer Funds and Franklin Templeton. Oppenheimer has exposure to Puerto Rican debt through its Rochester line of funds and Franklin Templeton has most of its exposure in one fund in particular, its Franklin Double Tax-Free Income Fund. Investors who own those mutual funds should talk with a wealth adviser.

http://abcnews.go.com/US/wireStory/qa-puerto-ricos-debt-crisis-explained-38804023

For the Visual Learners





The U.S. government has totally screwed this up for almost 100 years. Local economy has suffered since 1917 because of the Jones Act which restricts Puerto Ricans from buying goods from only American-based companies. Puerto Ricans pay Federal Taxes, were drafted into the military (and now suckered into enlisting), and arent even allowed to vote. Won't even touch on the Ponce Massacre, forced sterilization and medical testing, U.S. weapons testing, ect.

 

[andretti]

Damn

 

[AZwildcats]

Aren't there more Puerto Ricans in NYC than in PR?

 

[filthyjiujitsu]

Investors and PR Gov did well in sinking the economy.
Make matters worse, PR has the Zika virus and it's getting worse. Was planning to have my wedding in my homeland next year.... Changed it to Westchester, NY.

 

[slighted]

Investors and PR Gov did well in sinking the economy.
Make matters worse, PR has the Zika virus and it's getting worse. Was planning to have my wedding in my homeland next year.... Changed it to Westchester, NY.

PR has the virus too? I heard about it being bad in Brazil, but damn.

 

[ninjahood]

Aren't there more Puerto Ricans in NYC than in PR?

Orlando is more Puerto Rican than Puerto Rico

 

[filthyjiujitsu]

PR has the virus too? I heard about it being bad in Brazil, but damn.

:x

In addition to the Zika-related death, Puerto Rico reported 683 confirmed cases of Zika, including 65 pregnant women with symptoms of the virus, the CDC said on Friday.



http://mobile.reuters.com/article/idUSKCN0XQ24R

That is high numbers and only gonna get worse. The island is fairly small. Drove around the island at a leisurely pace in less than a week.
The pictures of babies are horrific. It sounds silly telling people aloud why I changed the location but not taking any chances with my fiancee.

 

[slighted]

^ Don't take any chances. This is your life, fam.

Stay safe out there.

 

[youngdoc]

PR has the virus too? I heard about it being bad in Brazil, but damn.

:x

In addition to the Zika-related death, Puerto Rico reported 683 confirmed cases of Zika, including 65 pregnant women with symptoms of the virus, the CDC said on Friday.



http://mobile.reuters.com/article/idUSKCN0XQ24R

That is high numbers and only gonna get worse. The island is fairly small. Drove around the island at a leisurely pace in less than a week.
The pictures of babies are horrific. It sounds silly telling people aloud why I changed the location but not taking any chances with my fiancee.

Not at all silly.

We're looking at a destination wedding and ruled out the Caribbean as a whole just to be safe

 

[Nike Jordan]

Aren't there more Puerto Ricans in NYC than in PR?

There are more Puerto Ricans living Stateside than on the island itself.

 

[7thave btn 31stn33rd st]

In addition to the Zika-related death, Puerto Rico reported 683 confirmed cases of Zika, including 65 pregnant women with symptoms of the virus, the CDC said on Friday.



http://mobile.reuters.com/article/idUSKCN0XQ24R

That is high numbers and only gonna get worse. The island is fairly small. Drove around the island at a leisurely pace in less than a week.
The pictures of babies are horrific. It sounds silly telling people aloud why I changed the location but not taking any chances with my fiancee.

Ya'll are overstating Zika in Puerto Rico when compared to Stateside.

US States

Travel-associated Zika virus disease cases reported: 426
Locally acquired vector-borne cases reported: 0
Total: 426
Pregnant: 36
Sexually transmitted: 8
Guillain-Barré syndrome: 1

US Territories

Travel-associated cases reported: 3
Locally acquired cases reported: 596
Total: 599
Pregnant: 56
Guillain-Barré syndrome: 5

http://www.cdc.gov/zika/geo/united-states.html

 

[ninjahood]

In addition to the Zika-related death, Puerto Rico reported 683 confirmed cases of Zika, including 65 pregnant women with symptoms of the virus, the CDC said on Friday.



http://mobile.reuters.com/article/idUSKCN0XQ24R

That is high numbers and only gonna get worse. The island is fairly small. Drove around the island at a leisurely pace in less than a week.
The pictures of babies are horrific. It sounds silly telling people aloud why I changed the location but not taking any chances with my fiancee.

Ya'll are overstating Zika in Puerto Rico when compared to Stateside.

US States

Travel-associated Zika virus disease cases reported: 426
Locally acquired vector-borne cases reported: 0
Total: 426
Pregnant: 36
Sexually transmitted: 8
Guillain-Barré syndrome: 1

US Territories

Travel-associated cases reported: 3
Locally acquired cases reported: 596
Total: 599
Pregnant: 56
Guillain-Barré syndrome: 5

http://www.cdc.gov/zika/geo/united-states.html

Umm. "US territories" is Puerto rico...from that chart **** look horrific cuz aint no Docs out there cuz PR broke.

 

[glennvagmire]

Just a matter of time before it becomes almost like Detroit so white people can go and take over. PR will soon start being gentrified.

Condos at the beach.

 

[4318michaeljohnson4318]

John Oliver did a segment on PR explains what happened. Dudes kept pumping out bonds. I wonder who all made money on the bonds.

 

[rillo561]

They already are, venture capitalist and wall ST. Buying up everything for pennies.

 

[dopeness]

70 billion dollars, 3 million people? Somethings not adding up.

 

[adobecs4]

Investors and PR Gov did well in sinking the economy.

Make matters worse, PR has the Zika virus and it's getting worse. Was planning to have my wedding in my homeland next year.... Changed it to Westchester, NY.

PR has the virus too? I heard about it being bad in Brazil, but damn.

:x

Dammit I'm going there for a week next month :x

 

[sonoftony]

Aren't there more Puerto Ricans in NYC than in PR?

Orlando is more Puerto Rican than Puerto Rico

not just Central FL, all of south florida too.

Ricans from the Island >> Nuyoricans

 

[Hahahaha]

Aren't there more Puerto Ricans in NYC than in PR?

Orlando is more Puerto Rican than Puerto Rico

not just Central FL, all of south florida too.

Ricans from the Island >> Nuyoricans

It's night and day

 

[dathbgboy]

70 billion dollars, 3 million people? Somethings not adding up.

Exactly

Things happening in P.R. are the same things happening to in your local boroughs, cities, etc. It's just that, when you have an island to be responsible for and a GDP to focus on, it makes matters worse.

30 years and P.R. Will look like Australia

 

[slighted]

PR is truly a cautionary tale along with Detroit, Greece, etc.

Bankruptcy lawyers and restructuring bankers will make guap off this debacle.

 

[Belgium]

Dammit I'm going there for a week next month

Stay safe pleighboi

 

[sonoftony]

Aren't there more Puerto Ricans in NYC than in PR?

Orlando is more Puerto Rican than Puerto Rico

not just Central FL, all of south florida too.

Ricans from the Island >> Nuyoricans

It's night and day

Big reason is that the one from the island can speak spanish

 

[orsrt8]

Just a matter of time before it becomes almost like Detroit so white people can go and take over. PR will soon start being gentrified.

Condos at the beach.

PR is not some 3rd world country
There has been condos at the beach for decades.

 

[dopeness]

PR is not some 3rd world country

There has been condos at the beach for decades.

I believe he's referring to gentrification.