Latest / Bloomberg Intelligence / Maglan's Tawil on Puerto Rico: Infrastructure at Risk (Audio)

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Maglan's Tawil on Puerto Rico: Infrastructure at Risk (Audio) · Bloomberg Intelligence

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  Speaker 1: on taking Stock, a story about Puerto Rico. U S
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  Speaker 1: Treasury Secretary Jacob Blue warning that Puerto Rico may need
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  Speaker 1: thank you, And now let's get an update of those
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  Speaker 1: that's a Bloomberg Business flash. You're listening to Taking Stock
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  Speaker 1: with Kathleen Hayes and Pim Fox on Bloomberg Radio. The
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  Speaker 1: Governor of the Commonwealth of Puerto Rico, Alejandro Garcia Pattillo,
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  Speaker 1: warned that port Rico bond investors will face a cascade
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  Speaker 1: of the faults beginning in July unless the US Congress
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  Speaker 1: passes legislation that would facilitate a restructuring of the commonwealth's debt. Well,
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  Speaker 1: how likely is that. Let's find out from David Towell.
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  Speaker 1: He is the president and the co founder of Magnun Capital. David,
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  Speaker 1: thank you very much. For being with us. So give
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  Speaker 1: us an update and and any prognosis you can for
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  Speaker 1: this patient that at least today is not paying four
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  Speaker 1: two million dollars from the Government Development Bank on interest
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  Speaker 1: that is due. Uh. So this is just another i'd say,
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  Speaker 1: data point on the timeline here for Puerto Rico. UM
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  Speaker 1: it is seemingly a point in time that the Congress
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  Speaker 1: didn't particularly think was so significant. The real um point
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  Speaker 1: in time that is at this point absolutely critical is
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  Speaker 1: a July one date where roughly two billion dollars of
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  Speaker 1: total payments are due, and more importantly of those payments,
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  Speaker 1: uh it will be potentially the first payment on general
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  Speaker 1: obligations bonds that the Commonwealth could code to default on.
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  Speaker 1: Why is it so critical to understand the value or
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  Speaker 1: the difference of a general obligation bond and let's say
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  Speaker 1: something from the Commonwealth Development Bank. Oh sure. So, as
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  Speaker 1: with the even corporate capital structures, their varying priorities on
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  Speaker 1: debt UM and when it comes to a Commonwealth like
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  Speaker 1: this one, UM, some bonds or some uh debt is
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  Speaker 1: guaranteed by certain revenue streams. In the case of general
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  Speaker 1: obligations bonds, they're actually guaranteed by the Constitutional Puerto Rico.
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  Speaker 1: Exactly what that means to the extent that they were
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  Speaker 1: default on that and exactly who would be able or
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  Speaker 1: which classes of bondholders would be entitled to which revenue
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  Speaker 1: streams that the commonwealth produces is actually a question that
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  Speaker 1: hasn't been an sard uh. And so therefore, you know,
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  Speaker 1: missing a payment on those geo's in July would actually
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  Speaker 1: bring the legal issue to a head um and make
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  Speaker 1: you know, play out very disastrously uh for the commonwealth itself.
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  Speaker 1: Forget about the bond holders for a second. Uh. You know,
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  Speaker 1: the commonwealth itself is under severe or financial stress right now,
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  Speaker 1: and the citizens of the island you know, need to
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  Speaker 1: get uh you know necessary uh, infrastructure necessary uh and
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  Speaker 1: basic you know services provided um, and that will further
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  Speaker 1: come under strain, you know, to the extent of the
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  Speaker 1: July first payment is well, just to highlight what you said,
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  Speaker 1: Governor Padilla, he said that he's going to be focusing
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  Speaker 1: on providing essential services rather than pay creditors. This is
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  Speaker 1: so far the biggest to fall. I guess you get
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  Speaker 1: attention when it's a billion dollars of a misspayment rather
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  Speaker 1: than just FO two million it's not only that, uh,
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  Speaker 1: you know, today's bonds um, you know don't allow the
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  Speaker 1: creditors uh necessarily to bring the Commonwealth to a halt
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  Speaker 1: uh the missed g O payment however, um, you know,
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  Speaker 1: if interpreted favorably for those general obligation bondholders, could actually
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  Speaker 1: disallow PADA from redirecting funds. Uh if the geos are
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  Speaker 1: successful in a litigation which says under the Commonwealth Constitution
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  Speaker 1: that they must be paid well. Frankly, general obligation bondholders
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  Speaker 1: may have an entitlement that could be very much higher
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  Speaker 1: than you know, the necessary infrastructure of the Commonwealth, or
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  Speaker 1: at least, you know, anything beyond the absolutely most bare
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  Speaker 1: bones basic needs of the Commonwealth. What about forty seven
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  Speaker 1: cents on the dollar? This, I understand is the agreement
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  Speaker 1: or the basis for an agreement by the government Development
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  Speaker 1: which defaulted today and some of their hedge funds bond holders. Yeah,
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  Speaker 1: there was a news report of regarding that regarding a
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  Speaker 1: certain group of bondholders comprising less than of the total
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  Speaker 1: outstanding bonds UM. And it also says that nothing is
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  Speaker 1: definite and that they would use the next thirty days,
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  Speaker 1: you know, to further discuss and they could obviously, you know,
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  Speaker 1: in order to complete restructuring of those GDB bonds, they'd
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  Speaker 1: need buy in from the remaining seventy plus percent who
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  Speaker 1: are not currently you know, part of that tentative agreement. Um,
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  Speaker 1: it's all well and good, but unfortunately we've we've seen
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  Speaker 1: a lot of this in this situation until this point,
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  Speaker 1: which is discussions and you know, tentative agreements and understandings
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  Speaker 1: around frameworks or you know, proposals being put forward and
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  Speaker 1: that hasn't gotten the Commonwealth anywhere. And at this time,
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  Speaker 1: you know, they're running on borrowed time. Uh, there really
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  Speaker 1: isn't time left to go ahead and have discussions with
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  Speaker 1: a minority of bondholders in the hope that a consensus
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  Speaker 1: will be reached. Obviously, there's always the possibility that a
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  Speaker 1: broad restructuring could go ahead and be reached and you know,
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  Speaker 1: everything will get sewn up pretty quickly. However, you know,
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  Speaker 1: history has shown, especially in this case, which is much
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  Speaker 1: more than a three ringed circus in wheer go ahead
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  Speaker 1: and orchestrate, that it's quite difficult. And so the likely um,
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  Speaker 1: you know, possibility is going to be that the Congress
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  Speaker 1: is either going to have to come together with respect
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  Speaker 1: to some sort of law that is going to be
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  Speaker 1: imposed on the island, or that we're going to get
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  Speaker 1: to a messy default here in July. Thank you very much.
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  Speaker 1: David's how president co founder Magdalen Capital speaking about Puerto
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  Speaker 1: Rico and it's a debt crisis. If you're listening to
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