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Muni Week Review / Preview 11/30/2015

Thursday, Dec 03, 2015

PUERTO RICO PAID ALL PRINCIPAL, INTEREST DUE DECEMBER 1. FALLING TREASURY SUPPLY TO KEEP LID ON RATES IN 2016. MUNI BOND DEMAND OUTPACES SUPPLY.

Puerto Rico Pays $354 Million Due December 1… Puerto Rico met its deadline for repaying $354 million in debt, avoiding what some feared would be its first major default. The announcement of the repayments came as Gov. Padilla and other officials were testifying before the Senate Judiciary Com-mittee, which is considering whether to give the island bankruptcy protection. The gover-nor stated that as of Tuesday it was going to “claw back” certain revenues dedicated to paying debts and use the money instead to provide government services and service general obligation bonds. The governor did not specify which types of debts if any would go unpaid as a result. “Today’s debt service payments reflect our commitment to honor our obligations notwithstanding the extreme fiscal challenges we face in an effort to facilitate a voluntary restructuring process with our creditors,” said GDB president, Melba Acosta Febo. “However, make no mistake, Puerto Rico’s liquidity position is severely constrained at this time despite the extraordinary measures the government has taken to improve it.” The statement also said the governor had signed an executive order allowing the island “to begin redirecting certain revenues in light of recently revised revenue estimates and its deteriorating liquid-ity situation.” Tuesday's hearing was the fifth so far this year in which various Congressional committees have taken testimony on what has caused Puerto Rico’s financial distress and what might be done about it. The Senate Judiciary Committee has jurisdiction over the federal bankruptcy law. So far, the Republicans who control Congress have said they want to help Puerto Rico but cannot until it provides audited financial statements and reveals how much the assistance will cost. The committee’s Republican chairman, Senator Charles Grassley of Iowa, said he had been “very troubled” to read in The New York Times on Monday that some of the governor’s advisers had been urging him to default and said he wanted the governor to let him know whether that was true.

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Creditors of Puerto Rico Sales Tax Financ-ing Bonds (COFINA) Comment On Recent Press Reports… Creditors of the Puerto Rico Sales Tax Financing Corp (COFINA), today issued the following statement with respect to recent media coverage regarding the Commonwealth of Puerto Rico’s proposed ‘superbond’. “Recent press reports suggest that a proposed ‘superbond’ will rely on a consolidation of revenue streams. While it’s unclear if this consolidation would include the portion of the sales and use tax that is COFINA’s property, it is important to note that the usage of COFINA revenues without our consent would violate Puerto Rican and U.S. Constitutions. We await further details of this proposed ‘superbond’ and look forward to working constructively with all parties to reach a viable plan that places the Common-wealth on the right path to economic sustainability. As one of the very few secured creditors in the Puerto Rico debt structure, we expect that our property rights will be protected. COFINA has been the Puerto Rico debt issue that individuals and institutions both on and off-island have most trusted with their capital, retirement accounts and life savings. The Commonwealth must respect the rights of retirees and creditors.”

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Congress Must Have Clear Data Before Helping Puerto Rico… “Everyone needs to come clean about the current state of affairs, the specific needs and amounts requested and the actual costs of any legislative or administrative proposal” to aid Puerto Rico, Senate Finance Cmte Chairman Orrin Hatch said on the Senate floor. On extending bankruptcy protection  to the U.S. Territory, Hatch said, “We should be cautious about,” such a move. “At the very least, we should consider what impact extending Chapter 9 to existing Puerto Rico obligations could have on credit transactions moving forward, given that parties set credit agreements based on the laws they expect to apply.” Hatch calls Obama administration’s tax proposals for Puerto Rico “problematic”. Finances in Puerto Rico remain opaque and difficult to monitor, he said.

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Senator Grassley Says Puerto Rico Bankruptcy Would Be A Bad Idea… The U.S. senator said giving Puerto Rico the power to file for bankruptcy protection to escape from its debts is a “bad idea” that won’t address the causes of the Commonwealth’s long-brewing fiscal crisis. Senator Grassley, the chairman of the Judiciary Committee, said at a hearing of the panel Tuesday that bankruptcy should be a last ditch measure, not an initial response. Island officials and Democratic lawmakers have pushed to give some Puerto Rico agencies the power to file for bankruptcy, which would allow the government to escape from some of what it owes. Municipal bondholders have lobbied against the proposed law, saying they bought the bonds with the assurance that bankruptcy wasn’t an option. The legislation has failed to advance in Congress for lack of Republican support.

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Falling Treasury Supply To Keep Lid On Rates in 2016… Lost in the debate over the U.S. Treasury market’s resilience as the Federal Re-serve starts to raise interest rates is one simple fact: supply is falling and fast. Net issuance of U.S. notes and bonds will tumble 26% next year, according to estimates by primary  dealers that are obligated to bid at Treasury debt auctions. The $433 billion of new supply would be the least since 2008. The Treasury has shifted its focus to T-bills as post-crisis regulations prompt investors to demand a larger stock of short-term debt instead. The drop-off in longer-term debt supply may keep a lid on yields, providing another reason to believe Fed Chair Janet Yellen can end an unprecedented era of easy money without causing a jump in interest rates that derails the economy.

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Muni Demand Outpaces Supply... Demand in the municipal bond market is outpacing supply pushing down the 10-year yield to 2.11%. The drop reversed four weeks of rising yields as investors prepared for the Federal Reserve to possibly raise interest rates next month. Investors continue to extend maturities and move down in credit quality.

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New Jersey Races To Get Casino Expansion On 2016 Ballot… Democrats who control the New Jersey legislature are in talks to get a measure on the November 2016 ballot that would ask voters to allow casinos outside Atlantic City. The move requires an amendment to the Constitution, which limited gambling houses to Atlantic City. Senator Paul Sarlo, a Democrat from Bergen County, said allowing gambling in other towns is crucial to reclaim tax revenue that has gone to New York and Pennsylvania. The proposal lawmakers are discussing would redirect a portion of the proceeds to Atlantic City, Sarlo said.

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Pennsylvania Still Without a Budget… PNC Bank managing director stated: “There is no time left to play partisan games. The budget is five months overdue. Schools and charities are borrowing money, cutting services and workers and even closing. Those legislators who don’t understand the importance of their duty to pass a budget should be marginalized by those who do.”

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Illinois Pension Debt, Deficit Threaten Rating… Regardless of any inherent strengths it may have as a state, there is no “ratings floor” for Illinois. Illinois exemplifies how pronounced vulnerabilities in several analytic areas can offset intrinsic credit strengths enough to introduce emerging speculative elements to a state’s credit profile. With a “Baa1” negative, Illinois is the lowest rated state.

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Illinois Will Pay Full December Pension Bill… Comptroller Leslie Geissler Munger will make the full $560 million pension payment this month. Illinois skipped the $560 million November payment because of the ongoing budget stalemate. Munger will pay the November bill in the early spring months when state revenue is “significantly higher” due to income tax  payments, Carter said Illinois is now in its sixth month without a spending plan.

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

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