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Bloomberg's Chappatta on Puerto Rico's Imminent Default (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pin
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  Speaker 1: Fox on Bloomberg Radio. Puerto Rican Governor Alejandro Garcia Padilla
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  Speaker 1: has said this week that there will be at default
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  Speaker 1: on Monday. He added that I don't think there is
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  Speaker 1: a deal on the table that avoids a default, So
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  Speaker 1: what will happen. That's why we have Brian Chappatta in
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  Speaker 1: his municipal bond reporter for Bloomberg News. You can follow
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  Speaker 1: him on Twitter at be Chapatta. Brian, welcome to the studio,
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  Speaker 1: Thanks for coming in, Thanks for having me. All right,
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  Speaker 1: you got you, Christo, Paul, Oh, it's an easy it's
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  Speaker 1: an easy called. I mean, the governor said that Puerto
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  Speaker 1: Rico is gonna default. They are going to default. It's
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  Speaker 1: just sort of a matter of how they're going to default.
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  Speaker 1: The idea how they're going to default, what the fallout
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  Speaker 1: is going to be from the default, like a well,
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  Speaker 1: the governor has the debt moratorium that he passed earlier
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  Speaker 1: this month at his disposal. That law allows him to
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  Speaker 1: just say we're not paying anymore effective immediately, so that's
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  Speaker 1: one route that they can take. There have been talks
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  Speaker 1: between creditors and the Government Development Bank in terms of
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  Speaker 1: a forbearance agreement or doing something in order to put
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  Speaker 1: off payments. Um, there's been no formal announcement yet that
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  Speaker 1: those have materialized and they've gotten agreements in place. But
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  Speaker 1: even if they have an agreement for a forbearance with creditors,
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  Speaker 1: the credit rating agencies still say this is a default
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  Speaker 1: because you're not making your full payment on time. Just
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  Speaker 1: to give detail to the numbers the creditors, seventy billion
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  Speaker 1: dollars that's the debt that that's the full debt. Four
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  Speaker 1: d and twenty two million is what was supp is
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  Speaker 1: to be paid on Monday, that's right, and that's on
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  Speaker 1: the Government Development Banks bonds. It's the fourth largest issuer
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  Speaker 1: of bonds on the island, with a little over seven
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  Speaker 1: billion dollars of bonds out there. So it would be
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  Speaker 1: in terms of the size of an issuer, it will
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  Speaker 1: be the largest Puerto Rico issuer to default so far.
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  Speaker 1: So far they've been relatively small authorities. Is there any
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  Speaker 1: update from the US Congress such as how Speaker Paul Ryan,
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  Speaker 1: I mean, this has been going on for three months.
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  Speaker 1: In fact, he asked them to put together what he
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  Speaker 1: called a responsible solution. Have the Democrats and the Republicans
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  Speaker 1: gotten together on this? Uh? They have a little bit
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  Speaker 1: there in recess right now, so nothing's gonna materialize until
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  Speaker 1: at least after May tenth, and there's a lot of
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  Speaker 1: talk that nothing might get done until they're backed up
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  Speaker 1: against another deadline, which would be July one. UM. There's
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  Speaker 1: also been conversations from Bishop who uh is spearheading this
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  Speaker 1: UH in Congress, saying that we're not that far apart um.
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  Speaker 1: There's just some small changes that need to be worked on.
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  Speaker 1: But it does seem like you know, you mentioned Paul Ryan,
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  Speaker 1: he's put a lot of political capital into this to
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  Speaker 1: making sure it gets done. So between him and Pelosi,
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  Speaker 1: it seems like they are going to try to reach
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  Speaker 1: some sort of solution, but it won't be enough to
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  Speaker 1: stop this May first default will it be enough to
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  Speaker 1: stop at the fault on July the first, because I
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  Speaker 1: understand that Puerto Rico owes two billion dollars then, and
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  Speaker 1: not just two billion dollars, but it's a lot of
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  Speaker 1: payments on their general obligation bonds, which are supposed to
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  Speaker 1: be Sacker saying to guaranteed under the Commonwealth Constitution. That's right,
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  Speaker 1: So that's gonna be the real interesting date. Um. This
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  Speaker 1: one has been telegraphed for a little while. I mean
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  Speaker 1: the governor said even back in December, we're gonna miss
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  Speaker 1: payments neither January or May. So he was sort of
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  Speaker 1: telegraphing this for a while. But uh yeah, the general
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  Speaker 1: obligation bonds, as you say, a Commonwealth guaranteed. Uh So,
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  Speaker 1: missing those would definitely open up a new can of
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  Speaker 1: worms for everyone involved. You have to open up that constitution.
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  Speaker 1: At this same time, Puerto Rico's economy is struggling. They
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  Speaker 1: are now dealing with an outbreak, or at least a
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  Speaker 1: potential outbreak, I should say, of the Zeka virus, and
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  Speaker 1: the governor has come on and said, there's no way
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  Speaker 1: that we can pay for eliminating these stagnant pools of
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  Speaker 1: water Uh, where the mosquitoes thrive. Yeah, I believe the
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  Speaker 1: first confirmed death from the ZEKEA virus was announced today
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  Speaker 1: in Puerto Rico. So that's a real sad situation. Um.
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  Speaker 1: The tourism industry was doing well in Puerto Rico and
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  Speaker 1: there's a possibility that this outbreak might hurt the one
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  Speaker 1: area of the economy that was actually growing and sort
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  Speaker 1: of doing well. So, uh, it's a pretty unfortunate situation. Yeah.
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  Speaker 1: I mean Governor Ali hud Garcia Perdia has said for
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  Speaker 1: a long time, we have to pay for essential services,
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  Speaker 1: and he's really you know, made this contrast between paying
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  Speaker 1: debt or making sure that the residents have a quality
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  Speaker 1: of life. And the residents of a commonwealth of Puerto
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  Speaker 1: Rico are leaving right. The actual population is shrinking that
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  Speaker 1: I mean, that's the biggest problem. And the argument that
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  Speaker 1: the governor and his aids are making two bondholders is, look,
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  Speaker 1: the longer you drag this out, the less you know,
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  Speaker 1: share of a pie you're gonna have, because the pie
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  Speaker 1: is shrinking. There's fewer people on the island. Uh. The
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  Speaker 1: economy is continuing to contract. Um, So yeah, you have
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  Speaker 1: this economy that's stagnant and actually declining again. Uh. And
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  Speaker 1: the population uh out migration is is a huge part
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  Speaker 1: of that. So they're saying, we need to get something
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  Speaker 1: done now so we can turn our economy around and
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  Speaker 1: you guys can get paid the most that we can
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  Speaker 1: afford at this time. So it's like three things. Right.
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  Speaker 1: You've got the government that has overspent or spent, according
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  Speaker 1: to some irresponsibly for a long time. Uh. If they
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  Speaker 1: failed to pass a balanced budget right, which is a
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  Speaker 1: constitutional requirement, and the g d P hasn't gone anywhere
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  Speaker 1: since two thousand five. It's it's a real problem. And
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  Speaker 1: that's why Congress uh sort of has to get involved.
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  Speaker 1: The governor said today pretty much that the ball is
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  Speaker 1: in Congress is court now. We need them to do something.
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  Speaker 1: There is a Recovery Act in front of the U. S.
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  Speaker 1: Supreme Court which could get passed, but the idea right
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  Speaker 1: now is mostly eyes on Congress in Washington and see
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  Speaker 1: see what they can come up with a fistal control
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  Speaker 1: board that might be able to implement some more control
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  Speaker 1: on government spending. You're gonna have a very busy weekend
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  Speaker 1: and a busy couple of months. Brian Schappetta, Thank you
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  Speaker 1: very much. Municipal bond reporter from Bloomberg can follow him
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  Speaker 1: on Twitter at b Chappetta. All about Puerto Rico and
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  Speaker 1: their debt problems. Our thanks to Reggie Basil, our engineer,
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  Speaker 1: producer Sam Lnga. I'm Pim Fox and this is Bloomberg Radio.
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