NO PUERTO RICO BILL FROM CONGRESS BY MAY 1st.PUERTO RICO GDB CLOSE TO A DEAL WITH CREDI-TORS. WITH ILLINOIS LAWMAKERS AT AN IMPASSE CHICAGO PUBLIC SCHOOLS LOOKS FOR FUNDING.
No Puerto Rico Bill From Congress By May 1st… Lawmakers have yet to resolve the politically charged issue of how to help Puerto Rico deal with its $70 billion debt crisis. Legislation, outlined in previous issues of GMS Review/Preview, has been undergoing revisions since a version was pulled from the House Natural Resources Committee’s consideration last week after objections raised by members of both parties and the Treasury Department. Committee Chairman, Rob Bishop (R-Utah) has said that Republicans are discussing “modest” tweaks to the bill, H.R. 4900. House leaders concede there is little chance of passing a Puerto Rico bill before a May 1st deadline on a $422 million debt payment, leaving members worried the urgency of the debate could wane until the next crisis point. Municipal bond insurers, including AMBAC and Assured Guaranty, as well as investment firms with big stakes have increased efforts to resolve the Island’s debt crisis by stepping up their lobbying spending this year as Congress struggles with legislation to address the problem. Many in Congress feel the legislation is a pure and simple bailout on the backs of bondholders. Bishop said “The bill is the most reasonable way to help all bondholders. The goal is to make sure everyone is paid, not just a few people.”
Puerto Rico’ GDB Close To A Deal… Puerto Rico’s Government Development Bank (GDB), operating under a state of emergency to preserve cash, is about half-way toward reaching a forbearance agreement with creditors owning $120 million of debt, according to an official. The GDB, which lent to the Commonwealth and its municipalities, owes $422 million on May 1st that officials have said the bank cannot pay. Such an agreement would allow the parties to negotiate out of court. The GDB said there is no agreement yet. While they are actively negotiating in good faith with creditors, no one on the team has suggested agreements have been reached. The bank has filed to sell debt that would mature in May 2017. The bank has $562 million of liquidity, according to a debt-moratorium law passed two weeks ago.
Moody’s Says Puerto Rico Will Default On May 2nd… The cash-strapped Com-monwealth is expected to fall short of paying $422 million to bondholders from the GDB, the credit rater said Friday in a report. It may also default on debt from the Employees Retirement System, Industrial Development Co. and Highways and Transportation Authority because the GDB has just $562 mil-lion in liquidity as of April 1st, Moody’s said. Moody’s expects Puerto Rico to pay the less than $3 million owed in May to bondholders of general obligation bonds and securities guaranteed by the Common-wealth’s constitution to “avoid the almost certain litigation that would quickly follow.” Sales Tax backed debt, known by the Spanish acronym COFINA will pay with funds already deposited with the trustee. Appropriation debt from the Public Finance Corp., which accounts for 75% of all Puerto Rico defaults so far, will fail to pay yet again, Moody’s said.
With Chicago Lawmakers At An Impasse Public Schools Look For Funding… Rising pension bills are at the core of Chicago’s problems. Despite recent cost cutting, Chicago Public Schools (CPS) will barely make its $680 million pension payment. To tide over bills, CPS will need a new line of credit as its cur-rent $870 million line of credit is fully drawn. Banking on state help and the reinstatement of a property tax levy for pensions officials said, “The amount we will seek will be determined by our FY17 budget, which we are still developing. The purpose is the same as it was for FY16 to bridge cash flow needs through the fiscal year.” Meanwhile, Chicago Teachers Union (CTU) rejected an independent arbitrator’s endorsement of the district's proposed four year contract offer that provides an 8.5% wage raise but phases out the district's coverage of teachers' pension payments. The CTU, which wants more assurance on job protections, rejected the offer threatening to strike a second time in a month. The independent arbitrator noted that CPS is the only Illinois school district to pay the vast majority of its teachers’ retirement costs. Mayor Emanuel, CPS CEO Claypool and CTU have called upon the state for more equitable pension funding. The pleas have gone nowhere with state law-makers locked in a budget impasse. If the Chicago School district should come up short on a debt payment the investors who bought CPS bonds can rest assured they will get what they are owed straight from Chicago taxpayers. The school district’s bond contracts include a provision that would trigger a property tax increase if CPS fails to pay bondholders.
Stopgap Funding Eases Illinois Colleges’ Fiscal Pains… Illinois lawmakers approved $600 million of funding for the state’s colleges and universities, unleashing aid that had been withheld during the state’s record long budget impasse. “This legislation doesn’t solve our budget crisis or help our economy grow, but it does represent a first step toward compromise between Democrats and Republicans. Now is the time to build on this bipartisan momentum and focus on enacting a truly balanced budget,” noted Governor Rauner. Illinois is in its 10th month without a budget. The legislation eases financial strain on Illinois universities and colleges facing financial pressure due to politicians’ failure to enact a budget.
Latest Developments At Atlantic City… Atlantic City claimed a legal victory and threw a counter-punch at the State of New Jersey. A County Superior Court judge ruled that Atlantic City is in compliance with payments to its school districts and denied the state’s request to freeze city spending till $33.4 million is paid to schools. Following Judge Mendez’s ruling, Atlantic City announced a counterclaim against New Jersey demanding the state provide $33.5 million in aid that was approved by a state monitor for the 2015 budget. The funds were to come from a bill in the state legislature vetoed by Gov. Chris Christie that would have enabled the city’s eight casinos to make payments-in-lieu of-taxes for 10 years. The salvo comes as Governor Christie, state lawmakers, local leaders and unions continue to argue over the conditions of state control for junk-rated Atlantic City to fix its fiscal woes. Atlantic City’s water authority had its credit rating cut seven levels by S&P to “B-” from “BBB” amid uncertainty surrounding restructuring avenues.
Muni Bond Sales Poised To Decelerate As Redemptions Rise… Municipal bond sales in the U.S. are set to decrease in the next month while the amount of redemptions and maturing debt rises. States and localities plan to issue $11.9 billion of bonds over the next 30 days. Municipalities have announced $8.9 billion of redemptions and an additional $10.8 billion of debt matures in the next 30 days, compared with the $19.4 billion that was scheduled a week ago. Issuers from California have the most debt coming due with $1.97 billion, followed by Michigan at $1.21 billion and New York with $942 million. California Department of Water Resources Power Supply Revenue has the biggest amount of securities maturing, with $669 million. The yield on state and local municipal bonds maturing in 10 years continues to move lower. Top quality municipal bonds due in 2026 yield around 1.70% or 88.85% of Treasuries, last week they yielded 89.85% of Treasuries. The average yield comparison over the 200 days is 96.75%
Information obtained from sources deemed reliable; GMS does not purport Review/Preview contains all available information.
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