Many state and local governments have promised to provide healthcare benefits for their retirees. These benefits cover retirees before they reach the eligibility age for Medicare and those who are Medicare ineligible. The promises include additional Cadillac benefits to retirees who are eligible for Medicare and provided supplemental coverage. These promises are known by their accounting moniker, OPEBs (other post employment benefits).
Senate Bill 993 was recently proposed in the Puerto Rico Senate to create a mechanism for public corporations to be restructured. Since Puerto Rico is a commonwealth of the United States, it is excluded from Chapter 9 municipal bankruptcy code. There is currently no legal framework for a reorganization of liabilities. The legislation would establish such a framework.
Puerto Rico brought its long awaited bond offering to market last Tuesday for $3.5 billion, the full amount that was authorized by the Legislative Assembly. Underwriters had talked about the deal as $3 billion, but it seemed obvious given the liquidity needs of the Government Development Bank that it would be upsized it to the full legislatively authorized limit. The bond was structured to mature in 2035 with a 2020 par call.
The Rockefeller Institute said in a note about fourth-quarter state tax revenues that revenues continue to be positive, but they have slowed from the first half of the year. Personal income taxes made up about 41 percent of total state tax revenue in the fourth quarter of 2013 and slowed considerably from the first half of the year. Rockefeller writes:
Just a few more data points on the upcoming $3 billion Puerto Rico general obligation sale expected to price on Tuesday, March 11. Note the yield curve remains inverted and likely will offer some very high yields to investors lucky enough to win bonds maturing in 2022 through 2025 (red box marks the maturities listed in the tentative sinking fund schedule below).
Moody’s cracked the whip and downgraded the rating of Chicago’s general obligation bonds to Baa1 from A3 this week. It’s only a one-notch downgrade, but no American city should wear the scarlet letter of BBB. Chicago’s Mayor Rahm Emanuel is seemingly frozen in place and having a tough time addressing the city’s fiscal problems. His behavior belies his famous 2009 quip to never let a serious crisis go to waste.