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Muni Week Review / Preview 8/10/2015

Tuesday, Aug 11, 2015

Puerto Rico Government Bank Chief says Finances Are Stable. Oppenheimer Funds, Franklin Say Puerto Rico Must Pay Bonds. September Fed Rate Hike In Play.

Puerto Rico Government Bank Chief Says Finances Are Stable… Puerto Rico Government Development Bank President Melba Acosta said it’s financially stable following a $169 million bond payment in August, El Vocero reported Friday. Bank working to further improve liquidity through attracting public deposits, exchange of notes and sales of assets: Acosta. Missing $59 million Public Finance Corp. debt payment on Aug. 3 “does not mean that it will not be paid”: Acosta. Govt in regular contact with creditors, including trustee of PFC debt: Acosta. In developing, 5-yr fiscal adjustment plan due Aug. 30, officials have discussed “debt reprofile,” including extending maturity on some prin-ciple payments.

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Oppenheimer Funds And Franklin Both Say Puerto Rico Must Pay Bonds… OppenheimerFunds Inc. And Franklin Advisers Inc. Said Puerto Rico is required to make a full payment on Public Finance Corp. bonds after the agency defaulted this week. The corporation paid just $628,000 of a $58 million debt-service payment due Monday Aug. 3 because the legislature failed to appropriate the funds. The two firms, which hold some of the defaulted debt, said in a letter to Puerto Rico officials released Thursday that the Commonwealth is obligated to pay investors. “The path that the current administration has chosen will steer Puerto Rico towards litigation and create further deterioration in the capital markets trust in Puerto Rico, potentially leading to years of economic turmoil for the people of Puerto Rico,” the firms wrote in a letter to Melba Acosta, president of the Government Development Bank and Juan Zaragoza, treasury secretary. They deman-ded the PFC take all actions necessary to pay the missed payment. The missed payment came just weeks before Puerto Rico officials are set to release a proposal that will address the island’s debt. Puerto Rico’s bond prices have dropped like a rock amid lack of information and speculation over which and how much of the island’s debt will be paid on time and in full.

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Senator Files Resolution To Pay The PFC Defaulted Debt Service Payment… Senator Gilbert Rodriques Valle filed a joint resolution to assign $93.65 million from the Economic Development Fund and reassign the money to The Public Finance Corporation (PFC) to pay the debt service due August 1. The Commonwealth defaulted on PFC debt service Monday August 3 when it only paid $628,000 of the $58 million due. The legislature will vote on the resolution when it convenes on August 17. 

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Legislation To Create New Federal Rules Growing Medicare And Medicaid In U.S. Territories, Such As Puerto Rico Has Been Filed In The U.S. Senate… The “Improving the treatment of the U.S. Territories under Federal Health Programs Act of 2015” would treat territories more like states by eliminating the current territorial monetary limit on Medicaid. The legislation could also provide federal funding to territory hospitals that serve large number of Medicaid or uninsured users. The legislation was also introduced by Puerto Rico Resident Commissioner Pedro Pierluisi in the U.S. House of Representatives. Puerto Rico now receives $1.1 to $1.3 billion a year in federal Medicaid funding. Oregon, which has roughly the same population, receives $5 billion per year. U.S. Sens. Charles Schumer of New York, Kirsten Gillibrand of New York, Richard Blumenthal of Connecticut, and Rober Menendez of New Jersey, introduced S. 1961, a nearly identical companion bill to H.R. 2635, which Pierluisi introduced on June 3.

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Puerto Rico Leaders: Playing Games Or Out Of Touch… Puerto Rico Government officials have presented statements and so called facts that cast doubt on their ability to fully understand and manage the Commonwealth’s unfolding financial crisis. Government officials in the last 6 weeks have behaved in a way that strikes many market observers as their being tonedeaf, evasive, inept or all three. It’s questionable whether Puerto Rico officials realize what’s important for bondholders and the island’s future. 

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Puerto Rico Debt Strategy Legal Expenses Could Cost $10mm Per Week… Some astute observers including AMBAC CEO Nader Tavakoli see litigation expenses that could amount to $10mm per week for the financially strapped Commonwealth. If Governor Alejandro Garcia Padilla’s administration ultimately decides a default strategy on debt payments, the cost would be horrific. Tavakoli sees an appetite among creditors for negotiation on certain Commonwealth issues.

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Deutsche Bank Sold EU66M Of Puerto Rico Bonds To Clients On Wednesday Aug 5… Clients in the U.S. bought EU65 million of Puerto Rican debt, European clients bought about EU1 million of such bonds, a Deutsche Bank spokesman told Euro am Sonntag magazine on August 6.

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September Rate Rise In Play As Labor Market Meets Fed’s Test… September remains in play for a Federal Reserve interestrate increase after the U.S. added 215,000 jobs in July, extending progress that’s encouraged policy makers to move toward removing unprecedented monetary stimulus. A measure of traders’ bets on a September rate hike rose to the highest level this year after a government report showed employ-ment growth last month was in line as average weekly hours inched up and the underemployment rate edged down. Another jobs report comes out Sept. 4, ahead of the Fed’s next meeting Sept. 16-17. Fed officials are trying to decide whether the economy has enough momentum before increasing the benchmark borrowing cost for the first time since 2006. Government bond traders are pricing in a 58 percent probability that the fed raises rates at the September meeting. The assumption is the effective Fed Funds Rate will average 0.375 percent after liftoff.

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Chicago Met Pier Cut To “BBB+” From “AAA” by S&P On Deposit Skip… Chicago’s Metropolitan Pier and Exposition Authority had its top credit rating slashed seven levels by Standard & Poor’s after it failed to make a required deposit of $20.8 million for debt service. Some of its bonds fell 5.6 percent. The cut to “BBB+” from “AAA” resulted from what the city agency called a “non-payment related technical default,” S&P said Wednesday in a report, the authority couldn't make a monthly transfer into the fund that covers its debt bills because of the impasse that’s left Illinois without a budget for more than a month. The agency said that it has the money, but can’t move the fund until the legislature autho-rizes the appropriation. The next principal and interest payment is due to investors in December. Metropolitan Pier’s $208 million of 5.25 percent bonds maturing in 2050 traded Wednesday at an average of 99 cents on the dollar to yield 5.2 percent. That’s down from an average price of 105 cents Tuesday, when the yield was 4.1 percent, according to data com-piled by Bloomberg.

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Wayne County Gets The Tools To Implement Recovery Plan… The Wayne County Commission voted Thursday to enter into con-sent agreement with the state after Governor Rick Snyder declared a financial emergency for Wayne, County, spokesman Joe Slezak said. The step will give it power to cut pay or benefits for employees without a contract and the tools to implement its Recovery Plan. Wayne County has a total of $654 million of the long-term general obligation debt outstanding, according to Moody’s Investors Service which rates the county “Ba3.” After Thursday’s vote, a spokesman said the county will negotiate in “good faith” with the unions. While the new state over-sight allows the officials to set employment terms, he said he wants to reach agreement at the bargaining table. Obtaining the consent agreements from the state is credit positive for Wayne Co. bondholders.

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Information obtained from sources deemed reliable; GMS does not purport Review/Preview contains all available information.

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