S&P downgrades Puerto Rico: The turning of the wheel

By Cate Long
February 5, 2014

Photo: Puerto Rico Treasury Secretary Melba Acosta (R) and Governor Alejandro Garcia Padilla at a press conference in response to S&P’s downgrade. (Source: Ustream) 

Puerto Rico’s solvency may hang on a potentially unconstitutional corporate tax

By Cate Long
February 2, 2014

Last June, I asked if the U.S. Treasury was bailing out Puerto Rico with an unusual interpretation of the federal tax code. This waiver or exemption allowed U.S. multinationals operating in Puerto Rico to credit taxes that were paid to Puerto Rico on their federal tax bill. The tax, referred to as Act 154, was passed by the Puerto Rico legislature in 2011. It brought in approximately $1.6 billion in 2011.

Negative signals from Puerto Rico

By Cate Long
January 27, 2014

The condition of Puerto Rico’s economy is a key concern for bond investors and rating agencies. Although its tax revenues have risen sharply as the government has increased various taxes, the economy has been contracting. From a recent Morningstar report:

Will Puerto Rico sell general obligation bonds?

By Cate Long
January 23, 2014

The New York Times reported that Morgan Stanley is shopping a potential $2 billion general obligation bond deal for Puerto Rico. Bloomberg followed up with a story that had a few more details about the offering that Puerto Rico supposedly has not authorized. According to Bloomberg the possible deal terms are:

Is Puerto Rico following Argentina’s path?

By Cate Long
December 27, 2013

The mysterious borrowing undertaken by the Puerto Rico Government Development Bank in the middle of December has been explained. The GDB issued a press release that said that it had “borrowed” $110 million from the state workers insurance fund:

Puerto Rico’s GDB borrows again

By Cate Long
December 23, 2013

Muniland’s most closely watched issuer, Puerto Rico, borrowed last week, according to a notice filed with the Municipal Securities Rulemaking Board’s EMMA system. There was no official statement, but the securities have CUSIP identifiers.

The many market views of Puerto Rico

By Cate Long
December 17, 2013

“That is what makes markets” is a financial industry aphorism that means there can be a broad spectrum of views about an asset or a specific security. This is most true for the municipal bonds of Puerto Rico.

A note to New York Fed President William Dudley

By Cate Long
December 10, 2013

Dear President Dudley:

Although it is a longstanding policy of the Federal Reserve not to intervene in the finances of state and local governments, it may be time to reconsider this policy in the case of Puerto Rico. A member of your board of directors, Richard Carrión the CEO and Chairman of Banco Popular de Puerto Rico, wrote to The Economist about the state of Puerto Rico’s finances:

Will Puerto Rico’s contracting economy lead to default?

By Cate Long
December 2, 2013

Justin Vélez-Hagan is the executive director of the National Puerto Rican Chamber of Commerce, a small non-profit not to be mistaken with the much larger Puerto Rico Chamber of Commerce.  Vélez-Hagan argues in a recent Forbes opinion piece that Puerto Rico must default on its debt:

Puerto Rico’s new liquidity providers

By Cate Long
November 13, 2013

 

There are plenty of stories about how hedge funds are being lured into buy Puerto Rico debt by big dealers. The Wall Street Journal wrote about hedge funds buying distressed debt. Bloomberg reported that Morgan Stanley, Citigroup and Lazard are holding information sessions for hedge funds to learn about Puerto Rico debt. A trader passed me the presentation from the Citi meeting. It was a detailed explanation of the seniority of Puerto Rico debt and the legal covenants and trading history of specific Puerto Rico issuers and authorities. I would guess Morgan Stanley and Lazard did an equally good job on the background for their clients.