Saturday, October 11, 2014

Wall Street Waits While Statehood Debate Handcuffs Puerto Rico Decision Makers - Forbes | Judge rules for Doral in tax dispute with Puerto Rico - Reuters


Wall Street Waits While Statehood Debate Handcuffs Puerto Rico Decision Makers


By Maryellen Tighe and Ellie Ismailidou
Puerto Rico has become much more than a vacation destination for anyone who invests their money on Wall Street, plans for retirement using pension funds, or even pays taxes. As the commonwealth continues to suffocate under the weight of nearly $70 billion in outstanding debt, a debate about whether Puerto Rico will become the 51st state has become less about the number of stars on the United States flag and more about the staggering losses facing those exposed to the territory.
While government officials grapple with strategies for addressing Puerto Rico’s massive debt load, they are left paralyzed by the inaction that stems from the fear that a step toward addressing the financial crisis would tip the balance either toward or away from becoming a state.
Flag of Puerto Rico
Flag of Puerto Rico (Photo credit: Wikipedia)
For evidence of the conundrum you can look no further than the decision-making related to accepting tax breaks from the continental US to boost revenue. One of the earliest sparks for Puerto Rico’s financial demise was lit in 1996, when President Bill Clinton repealed the legislation that gave tax incentives for US companies to locate facilities in Puerto Rico.
But because those tax breaks are perceived as a hurdle to statehood, Puerto Rico Resident Commissioner Pedro Pierluisi – a non-voting member of Congress and a member of the pro-statehood New Progressive Party – would not advocate for the return of the aid, even if they could help balance the budget.
A related wrinkle comes into play as the market debates the benefits of a federal bailout. Yes, a bailout would be expensive for US taxpayers; but Puerto Rico’s default could be far more disruptive than Detroit’s record bankruptcy, experts tell Debtwire.
Lastly, indecisiveness on the issue impacts what could be the most efficient mechanism to remedy the financial woes. With Puerto Rico being a territory and not a municipality, it cannot even file for bankruptcyaccording to federal law. This means that any type of debt restructuring would unfold in an uncontrolled way a la Greece or Argentina.
The statehood stalemate could have a devastating effect on Wall Street if it also results on a standstill over how to balance the budget and also keep up with debt obligations.
Puerto Rico and its various public agencies have issued $70 billion of debt in the tax-exempt municipal bond market, which has been picked up by state-specific bond funds across America. Today around 70 percent of US mutual funds own Puerto Rico securities, according to Morningstar.  These funds were looking to increase their yield with the commonwealth’s bonds, which are exempt from state, local and federal taxes. As Puerto Rico entered a severe financial crisis and its bonds were eventually downgraded to “junk” status, prices tanked and investors have lost as much as 35% of their holdings.
With the territory stuck in limbo, the fact of Puerto Rico’s public corporations stepped into focus last week when the governor surprised the market by presenting a last-minute bill that would provide an avenue for restructuring to public agencies and utilities but not to the commonwealth itself.
Maryellen is a senior reporter covering Puerto Rico, Michigan, and the utilities sector for Debtwire Municipals.  Ellie is a reporter following Puerto Rico, California, and public pensions.  Maryellen and Ellie can be reached atMaryellen.tighe@debtwire.com and ellie.ismailidou@debtwire.com, respectively.
This post is brought to you by Debtwire, a Mergermarket company, the leading provider of real-time intelligence, analysis and data on distressed debt, leveraged finance and asset-backed markets. The team at Debtwire is comprised of financial journalists and credit analysts with considerable experience covering trading, law and investment banking. Our reach is global, with separate products covering North America, Europe, CEEMEA, Asia-Pacific, Latin America, ABS and Municipals.  For more information regarding Debtwire visit www.debtwire.com.

Puerto Rico GDB Sells Notes in Island’s First Offer Since March

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Puerto Rico’s Government Development Bank sold at least $620 million of notes maturing in June 2015, in the island’s first borrowing since lawmakers passed a debt-restructuring law.
The offering from the junk-rated commonwealth included about $560 million of tax-exempt securities priced to yield 7.75 percent, where benchmark issuers pay about 0.14 percent to borrow for one year, data compiled by Bloomberg show.
The commonwealth in June approved a law that allows certain public agencies to ask bondholders to take a loss. The three largest credit-rating companies cut the island to speculative grade in February as its leaders struggled to revive the island’s economy and generate enough revenue to pay its debt.
The GDB, which handles the territory’s capital-markets transactions, also sold $61 million of floating-rate notes, Bloomberg data show.
Jessica Francisco, a spokeswoman at New York-based JPMorgan Chase & Co., which managed the fixed-rate portion of the sale, declined to comment, as did Mark Lane, a spokesman in New York for Barclays Capital Inc., which handled the floating-rate part.
To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net
To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.netMark Tannenbaum, Pete Young
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CORRECTED-Puerto Rico passes legislation ahead of bond deal

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Wed Oct 8, 2014 10:24am EDT

(Corrects TRANS note amount in paragraph 3 to $1.2 billion from $1.2 million)

NEW YORK Oct 7 (Reuters) - Puerto Rico enacted legislation on Tuesday providing additional guarantees to investors who purchase Tax Revenue Anticipation Notes (TRANS) issued by the U.S. commonwealth.

Governor Alejandro Garcia Padilla, who signed the legislation, said the guarantees were to win more favorable terms for the commonwealth's government.

The legislation, approved by the Senate Monday night and the House last week, would allow the Treasury Department to sell up to $1.2 billion in TRANS notes.

A syndicate of U.S. and local banks are expected to buy $900 million of TRANS notes and Puerto Rico's Government Development Bank would provide the additional $300 million, Senate FinanceCommittee Chairman Jose Nadal Power said.

That syndicate is lead by JPMorgan Chase & Co, and includes local banks Popular Inc and First Bank, according to financial industry executives in San Juan.

The legislation is seen as providing additional protection for investors by allowing them to sue under New York law. Investors are wary of lending to Puerto Rico because it has been hit by a series of creditdowngrades and has made moves to restructure some of its public corporation debt.

The legislation also enables the Treasury secretary to "cede its immunity, sovereign or otherwise, with respect to judicial procedures." (Reporting by Edward Krudy; Editing by Lisa Shumaker)

Puerto Rico to Sell $1.2 Billion in Notes on Unusual Terms

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Updated Oct. 7, 2014 6:12 p.m. ET
The financial district in San Juan, Puerto Rico. The financially strapped territory aims to broaden its funding base and to avoid the market unrest that followed a bond issue in March. Associated Press
Puerto Rico is expected to sell up to $1.2 billion of short-term notes this week to large banks that have agreed to hold the debt until it matures in June, forestalling the heavy selling that followed a bond sale in March.
Lenders including J.P. Morgan Chase JPM -0.95% JPMorgan Chase & Co. U.S.: NYSE $58.52 -0.56-0.95% Oct. 10, 2014 4:00 pm Volume (Delayed 15m) : 16.48M AFTER HOURS $58.50 -0.02 -0.03%Oct. 10, 2014 7:55 pm Volume (Delayed 15m) : 209,910 P/E Ratio 15.01 Market Cap $222.22 BillionDividend Yield 2.73% Rev. per Employee $404,867 60595810a12p2p4p6p8p 10/11/14 Crystal Ball10/10/14 J.P. Morgan CEO: Cybersecurity... 10/10/14 Puerto Rico Sells $900 Million... More quote details and news » JPM in  Your Value Your Change Short position & Co., Bank of America Corp. BAC-0.66% Bank of America Corp. U.S.: NYSE $16.48 -0.11 -0.66% Oct. 10, 2014 4:03 pm Volume (Delayed 15m) : 128.00M AFTER HOURS $16.49 +0.01 +0.06% Oct. 10, 2014 7:59 pm Volume (Delayed 15m) : 1.56M P/E Ratio 25.35 Market Cap $174.46 Billion Dividend Yield 1.21% Rev. per Employee $395,876 16.8016.6016.4016.2010a12p2p4p6p8p 10/10/14 J.P. Morgan CEO: Cybersecurity... 10/10/14 Puerto Rico Sells $900 Million... 10/10/14 Bank Execs Try to Push Beyond ...More quote details and news » BAC in  Your Value Your Change Short position and Morgan StanleyMS -1.08% Morgan Stanley U.S.: NYSE $32.94 -0.36 -1.08% Oct. 10, 2014 4:02 pm Volume (Delayed 15m) : 10.95M AFTER HOURS $32.94 0.00 % Oct. 10, 2014 6:19 pm Volume (Delayed 15m) :230,665 P/E Ratio 15.18 Market Cap $65.38 Billion Dividend Yield 1.21% Rev. per Employee $778,05934.0033.5033.0032.5010a11a12p1p2p3p4p5p6p 10/10/14 Tesla Aims to Leapfrog Rivals 10/10/14Puerto Rico Sells $900 Million... 10/10/14 Morgan Stanley Says No Assuran... More quote details and news » MS in  Your Value Your Change Short position have said they won’t sell the debt, which is often sold by purchasing banks to bond funds and other buyers, according to people familiar with Puerto Rico’s financing plans. The sale of short-term notes, rated below investment grade, is expected to be arranged by J.P. Morgan, the people said. The $3.5 billion of bonds in March were purchased largely by hedge funds.
The unusual requirement tied to the proposed sale of tax- and revenue-anticipation notes reflects the financially strapped territory’s efforts to broaden its funding base and to avoid the market unrest that followed the March deal, some of the people said. Banks don’t usually agree to such lockups because regulators have increased capital charges for holding debt rated below investment grade, a bid to discourage lenders from holding risky assets.
The debt matures in June and will pay 7.75% annual interest, according to a notice posted on the website of Electronic Municipal Market Access, known as EMMA. The relatively high interest rate reflects investor fears that the island’s economy won’t turn a corner before the government runs out of cash.
Puerto Rico, under Gov. Alejandro Garcia Padilla, wants to broaden its funding base and avoid the market unrest that followed a March deal. Reuters
The sale would mark the first time Puerto Rico has raised money in public markets since passing a law in June that allowed agencies such as the island’s power, water and highway authorities to restructure their debts. Those three agencies have almost $20 billion in outstanding debt, according to BarclaysBARC.LN -0.91% Barclays PLC U.K.: London GBp223.90 -2.05 -0.91% Oct. 10, 2014 4:35 pm Volume (Delayed 15m) : 40.32M P/E Ratio 32.45 Market Cap GBp37.18 Billion Dividend Yield 1.79% Rev. per Employee GBp212,636 2282262242229a10a11a12p1p2p3p4p 10/10/14 Tesla Aims to Leapfrog Rivals10/10/14 RBC Ordered to Pay $75.8 Milli... 10/10/14 Nike CIO Rakes in the Honors More quote details and news » BARC.LN in  Your Value Your Change Short position PLC. The law doesn’t apply to Puerto Rico’s general obligation or sales tax debt.
Representatives for J.P. Morgan, Morgan Stanley and Bank of America declined to comment.
Puerto Rico has about $73 billion in total debt, which is widely held by mutual funds, hedge funds and individuals, and the island needs market access to cover expenses, including more than $1.2 billion in debt service due this year.
By selling new bonds, Puerto Rico buys itself time to try to restart the economy, plug its budget deficit and to restructure the Puerto Rico Electric Power Authority, which owes about $9 billion.
The previous sale was billed as crucial to give the new administration of Gov. Alejandro Garcia Padilla breathing room. The sale came after major credit-rating firms downgraded Puerto Rico to junk status.
By issuing debt only to banks, Puerto Rico is broadening its pool of investors, as it plans to sell longer-term bonds in coming months and may need hedge funds and mutual funds to buy that debt, said Robert Donahue, managing director at research firm Municipal Market Advisors. The commonwealth also may have wanted to keep the bonds from trading immediately to avoid the risk that falling prices might undermine investor confidence, he said.
Hedge funds like Och-Ziff Capital Management OZM -1.04% Och-Ziff Capital Management LLC U.S.: NYSE $10.50 -0.11 -1.04% Oct. 10, 2014 4:03 pm Volume (Delayed 15m) : 2.13M AFTER HOURS$10.50 0.00 % Oct. 10, 2014 4:05 pm Volume (Delayed 15m) : 5,064 P/E Ratio 6.51 Market Cap $5.03 Billion Dividend Yield 6.48% Rev. per Employee $4,007,52010.7510.5010.2510.0010a11a12p1p2p3p4p 10/07/14 Puerto Rico to Sell $1.2 Billi... 09/28/14 Fed Questions Bank Maneuver to... 09/18/14 Regulators Probe Goldman's Int... More quote details and news » OZM in  Your Value Your Change Short position LLC, Fir Tree Partners and Perry Capital LLC bought most of Puerto Rico’s bonds in March. Some still own the debt, but many sold out within weeks. The bond traded 2,539 times in its first month after issue, declining in value by about 8% in that period, according to data from EMMA.
In comparison, a California bond sale in March traded 717 times in its first month, according to EMMA.
Banks buying the new notes, which include Barclays and Banco Popular, are willing to put the risky debt on their balance sheets because it pays an unusually high rate for short-term debt. A bond backing bankrupt Detroit’s development authority that matures in July traded in recent days at a yield of about 4.25%, according to EMMA.
Agreeing to buy debt now could also win the banks business underwriting billions of dollars in future bond sales Puerto Rico hopes to sell to fund managers in the next 12 months, analysts said.
A representative of Barclays declined to comment. Representatives for Banco Popular didn’t immediately return requests for comment.
Write to Matt Wirz at matthieu.wirz@wsj.com
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Puerto Rico GOs fall as commonwealth issues tax notes

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NEW YORK Fri Oct 10, 2014 1:46pm EDT

NEW YORK Oct 10 (Reuters) - Prices of Puerto Rico's benchmark general obligation bonds fell to their lowest average level since July on Friday as the U.S. commonwealth carried out a private placement of up to $1.2 billion in short-term notes.

The bonds, which carry an 8 percent coupon and mature in 2035, traded at an average price of 87.833 cents on the dollar and a yield on 9.336 percent, according to Municipal Market Data (MMD).

As part of the short-term Tax Revenue Anticipation Notes (TRANS) sale Puerto Rico's Government Development Bank issued nearly $350 million in short-term financing on Thursday, according to a filing on the Electronic Municipal Market Access (EMMA) website.

A source with knowledge of the transaction, who could not talk publicly about the ongoing deal, said the bulk of the sale would likely be completed on Friday.

The TRANS notes sold on Thursday carried an interest rate of 7.7 percent to 7.75 percent and mature in June 2015. That compares to top-rated municipal borrowers who pay 0.13 percent a year for loans, according to MMD.

Puerto Rico's debt carries below investment grade, or junk, ratings.

Puerto Rico's tax collections fell unexpectedly in September and the first quarter take, of $1.77 billion, was $36 million below expectations, it said on Thursday. The commonwealth also warned that it may cut its income tax forecast for the coming months. (Reporting by Edward Krudy; Editing by Richard Chang)

UPDATE 2-Puerto Rico pays heavy price in $1.2 bln note sale

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Fri Oct 10, 2014 5:48pm EDT

(Adds Moody's quote, details of transaction)


NEW YORK Oct 10 (Reuters) - Puerto Rico paid a steep price to complete a $1.2 bln short-term financing deal on Friday as bonds of the indebted commonwealth slipped to a three-month low and recent data showed the economy and tax revenues remain weak.

Puerto Rico paid an interest rate of nearly 8 percent to borrow from a syndicate of banks until next June, the commonwealth's Government Development Bank (GDB) said on Friday, a hefty premium compared with top-rated municipal borrowers, who pay about 0.13 percent to borrow for a year.

Traditional muni investors are largely steering clear of Puerto Rico with its debt load of over $70 billion. The Commonwealth passed a law in June that enables it public corporations to restructure around $20 billion in debt, further spooking bondholders.

The exodus of traditional muni funds has left Puerto Rico's financing needs in the hands of banks and hedge funds. Friday's note deal was the first time the island had borrowed money since March when it issued $3.5 billion in general obligation bonds, a deal bought mainly by hedge funds.

"Clearly the commonwealth only has access to a very limited audience and that's why they have had to pay such high rates," said Triet Nguyen, an analyst at NewOak.

Hedge funds did not take any of the note sale on Friday, a person close to the transaction said. However, the banks could sell on the notes at a later date, according to another person involved in the sale. The people were not authorized to talk to publicly about the deal.

Puerto Rico's benchmark general obligation bonds fell to the lowest since July on Friday. The bond, which carry an 8 percent coupon and mature in 2035, traded at an average price of 87.833 cents on the dollar and a yield of 9.336 percent, according to Municipal Market Data (MMD).

The notes sold on Friday have a general obligation guarantee, a sign of the more onerous borrowing conditions that Puerto Rico faces. Although they are treated equally with other GO debt they have a time seniority because of their short-term nature.

"The commonwealth still has market access but it is coming with increasingly onerous terms and at higher borrowing costs," said Edward Hampton, an analyst at ratings agency Moody's.

The deal "underscores the continued vulnerability on the liquidity front and the long running economic stagnation that has exacerbated its budgetary challenges," he said.

The notes were Tax Revenue Anticipation Notes (TRANS), usually a standard cash management tool used to provide funds ahead of expected tax revenues.

Puerto Rico also had to waive sovereign immunity and agree to New York jurisdiction in the event of any legal disputes involving the notes.

The weakness in Puerto Rico's bonds on Friday followed some disappointing tax revenue and economic data in recent weeks.

Puerto Rico's tax collections fell unexpectedly in September and the first quarter take, of $1.77 billion, was $36 million below expectations, it said on Thursday.

The commonwealth also warned that it may cut its income tax forecast for the coming months.

The missed revenue forecast came after data showing ongoing weakness in the economy. Puerto Rico's economic activity has slumped to its lowest level in two decades, according to an index released by the GDB at the end of September.

The GDB said $700 million of the notes are structured as a term note and carry an annual interest rate of 7.75 percent, while $200 mln of notes are structured as a revolving line and carry an annual interest rate of one-month Libor plus 7.55 percent. The GDB funded an additional $300 million in notes.

The lead underwriter on the transaction was J.P. Morgan. Morgan Stanley, Bank of America, Barclays, Banco Popular de Puerto Rico and Amalgamated Bank also took part.

J.P. Morgan and Morgan Stanley each took $250 million of the notes, Bank of America took $200 million, Banco Popular took $100 million, Barclays took $75 million, and Amalgamated Bank took $25 million, according to someone close to the transaction who was not able to talk about it publicly. (Reporting by Edward Krudy; Editing by Chizu Nomiyama and Marguerita Choy)
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UPDATE 2-Judge rules for Doral in tax dispute with Puerto Rico

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Fri Oct 10, 2014 7:42pm EDT

(Adds Puerto Rico's statement that it will appeal and percentage jump of Doral's stock price.)

SAN JUAN, Puerto Rico Oct 10 (Reuters) - A Puerto Rico judge ruled in favor of Doral late on Friday in its $229 million tax dispute with the Puerto Rico Treasury Department, which said it would appeal.

"The court finds that the State failed to prove that relevant facts were falsified," Puerto Rico Superior Court Judge Laureana Perez said in her 48-page ruling.

Following the ruling, Doral's shares jumped more than 30 percent in after-hours trading to $7.25 from $5.29.

Puerto Rico's Treasury Secretary said it would pursue "all legal options available" to appeal the ruling, noting that it "sets a dangerous precedent."

Last May, the Treasury Department voided a 2012 agreement that set a $229 million tax refund for Doral resulting from a restatement of inflated earnings during a six-year period from 1998 to 2004. Doral asked for the payment after U.S. regulators said earlier this year it could no longer include the money as cash on its balance sheet.

Treasury Secretary Melba Acosta said the agency voided the deal because it was never recognized in government accounting books and because the statute of limitations had run out on the refund. Officials also cited discrepancies in Doral financial documents and said the agreement was reached through fraud.

In response to the ruling, Doral's Chief Legal Counsel Matthew McGill of Gibson, Dunn & Crutcher, said in a statement that it was "a great day not just for Doral but also for the rule of law in Puerto Rico. Doral stands ready to work with Hacienda to put this litigation behind us all and to move forward serving the people of Puerto Rico."

Puerto Rico's Treasury Department said the refund payment of over $200 million would need to be repaid in five installments over a five year period and would "remain contested by the Commonwealth of Puerto Rico until appeal processes within the judiciary system are resolved."

The department also noted that the applicable law allows for longer payment plans for payment of judgments. (Reporting by Reuters in San Juan; Editing by Chris Reese and Ken Wills)
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Doral Rises After $229 Million Puerto Rico Tax Refund Win

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Doral Financial Corp. (DRL), the holding company for Puerto Rico’s second-largest lender, rose as much as 50 percent in after-hours trading following a San Juan judge’s ruling that it’s entitled to a $229.9 million tax refund.
The Puerto Rico Department of Treasury will be required to refund the full amount over five years under the ruling yesterday by Superior Court Judge Laureana Perez Perez.
Doral hasn’t posted an annual profit since 2005 and has been under pressure to collect the tax refund that the firm said was due under a 2012 agreement.
The bank sued the Treasury when settlement talks over the refund broke down this summer. San Juan-based Doral claimed the government reneged on a promise to return the overcharge.
The tax dispute arose amid a slowdown in Puerto Rico’s economy, which has struggled to expand since 2006, and financial difficulties for both for the island’s government and the San Juan-based lender. Puerto Rico’s credit rankings were dropped to speculative grade in February by the three largest credit-rating companies as concerns rose over whether the U.S. commonwealth and its agencies will be able to repay their combined $73 billion in debt.
Perez said she couldn’t consider the condition of the economy in deciding the case. The Treasury didn’t prove Doral had misrepresented or falsified facts related to an agreement in the tax dispute, according to the judge.

Appeal Vowed

Puerto Rico Treasury Secretary Melba Acosta Febo vowed to appeal the decision.
“We respectfully disagree with the court’s ruling in this matter, which is inconsistent with the Internal Revenue Code, applicable laws and regulations,” she said in a statement.
Doral fell 24 percent on Oct. 1 when it disclosed in a regulatory filing that the Federal Deposit Insurance Corp. had downgraded it to “significantly undercapitalized.” The bank must “immediately” increase capital to the minimums required in a 2012 consent order or submit a contingency plan for the sale, merger or liquidation of the bank, according to that filing.
“The court carefully listened to all the evidence and has ruled definitively that Doral’s tax agreement is valid and effective,” the company’s chief legal counsel, Matthew McGill, said yesterday in a statement. “It’s a great day not just for Doral but also for the rule of law in Puerto Rico.”
The refund stems from the company’s overstatement of earnings from 1998 to 2005, an attorney for Doral said in June.

Earnings Restated

Doral announced in September 2005 that it would restate earnings before taxes as of the end of 2004. The following year, it agreed to pay a $25 million fine to settle an investigation by the U.S. Securities and Exchange Commission into whether it had overstated earnings from 2000 to 2004. The company didn’t admit or deny regulators’ allegations in the settlement, the SEC said at the time.
The excess tax payment on the overstated earnings was memorialized in an agreement that Doral alleges the treasury department wrongfully voided. In its lawsuit, Doral said that the agency’s actions were “unlawful and beyond its authority.”
The Puerto Rican government maintained that it didn’t owe the money. In May, the Federal Reserve Bank of New York told Doral to write off the refund as a loss on its balance sheet after Puerto Rico’s Treasury ruled that the company wasn’t entitled to payment.
The case is Doral Financial Corp. v. Commonwealth of Puerto Rico, KAC2014-0533, Civil Court of First Instance, San Juan Superior Division.
To contact the reporter on this story: Phil Milford in Wilmington, Delaware at pmilford@bloomberg.net; Alexander Lopez in Civil Court of First Instance in San Juan
To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Andrew Dunn
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Puerto Rico Sells $900 Million of Short-Term Notes

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Updated Oct. 10, 2014 5:23 p.m. ET
Puerto Rico sold $900 million of short-term notes bearing interest rates of as much as 7.75%, its first debt offering since the passage of a law paving the way for a possible restructuring of some of its agencies’ obligations.
Among the lenders were J.P. Morgan Chase JPM -0.95% JPMorgan Chase & Co. U.S.: NYSE $58.52-0.56 -0.95% Oct. 10, 2014 4:00 pm Volume (Delayed 15m) : 16.48M AFTER HOURS $58.50 -0.02-0.03% Oct. 10, 2014 7:55 pm Volume (Delayed 15m) : 209,910 P/E Ratio 15.01 Market Cap $222.22 Billion Dividend Yield 2.73% Rev. per Employee $404,867 60595810a12p2p4p6p8p 10/11/14 Crystal Ball 10/10/14 J.P. Morgan CEO: Cybersecurity... 10/10/14 Puerto Rico Sells $900 Million... More quote details and news » JPM in  Your Value Your Change Short position & Co., Bank of America Corp. BAC-0.66% Bank of America Corp. U.S.: NYSE $16.48 -0.11 -0.66% Oct. 10, 2014 4:03 pm Volume (Delayed 15m) : 128.00M AFTER HOURS $16.49 +0.01 +0.06% Oct. 10, 2014 7:59 pm Volume (Delayed 15m) : 1.56M P/E Ratio 25.35 Market Cap $174.46 Billion Dividend Yield 1.21% Rev. per Employee $395,876 16.8016.6016.4016.2010a12p2p4p6p8p 10/10/14 J.P. Morgan CEO: Cybersecurity... 10/10/14 Puerto Rico Sells $900 Million... 10/10/14 Bank Execs Try to Push Beyond ...More quote details and news » BAC in  Your Value Your Change Short position and Morgan Stanley,MS -1.08% Morgan Stanley U.S.: NYSE $32.94 -0.36 -1.08% Oct. 10, 2014 4:02 pm Volume (Delayed 15m) : 10.95M AFTER HOURS $32.94 0.00 % Oct. 10, 2014 6:19 pm Volume (Delayed 15m) :230,665 P/E Ratio 15.18 Market Cap $65.38 Billion Dividend Yield 1.21% Rev. per Employee $778,05934.0033.5033.0032.5010a11a12p1p2p3p4p5p6p 10/10/14 Tesla Aims to Leapfrog Rivals 10/10/14Puerto Rico Sells $900 Million... 10/10/14 Morgan Stanley Says No Assuran... More quote details and news » MS in  Your Value Your Change Short position according to a news release issued by the U.S. commonwealth.
The relatively high interest rate reflects concerns that Puerto Rico could run out of cash as its economy struggles. A widely watched index measuring economic activity in August fell to its lowest level in 20 years. In comparison, a bond backing bankrupt Detroit’s development authority, which matures in July, traded in recent days at a yield of about 4.25%. Treasury bills maturing in June 2015 yield about 0.05%.
“This transaction will support the Commonwealth’s ongoing liquidity as we continue to focus on guiding Puerto Rico on a path to fiscal health and stability,” Puerto Rico Treasury Secretary Melba Acosta said in the release.
The deal “means Puerto Rico will live another day,” said Robert Donahue, managing director at the research firm Municipal Market Advisors. The sale “should allow the government to breathe easy until the end of the fiscal year. The banks will continue to have to monitor the cash burn at the central government level to ensure they can get repaid by next June.”
Puerto Rico collects the bulk of its tax receipts in the fourth quarter of its fiscal year, which ends on June 30, Mr. Donahue said. The commonwealth often taps banks for debt financing that is backed by this anticipated tax revenue.
But its financial woes have complicated and raised the costs of what in past years has been a routine annual transaction. For example, these latest notes are subject to New York law, a new protection for the banks, said Shawn O’Leary, senior research analyst at Nuveen Investment Management LLC. The high interest rate on the Puerto Rico notes shows “how thin the market for Puerto Rico paper is at this point,” he said.
The sale marks the first time Puerto Rico has borrowed since passing a law in June that allowed some agencies such as the island’s power, water and highway authorities to restructure their debts. Those three agencies have almost $20 billion in debt outstanding, according to analysts at Barclays.BARC.LN -0.91% Barclays PLC U.K.: London GBp223.90 -2.05 -0.91% Oct. 10, 2014 4:35 pm Volume (Delayed 15m) : 40.32M P/E Ratio 32.45 Market Cap GBp37.18 Billion Dividend Yield 1.79% Rev. per Employee GBp212,636 2282262242229a10a11a12p1p2p3p4p 10/10/14 Tesla Aims to Leapfrog Rivals10/10/14 RBC Ordered to Pay $75.8 Milli... 10/10/14 Nike CIO Rakes in the Honors More quote details and news » BARC.LN in  Your Value Your Change Short position The law doesn’t apply to Puerto Rico’s general-obligation or sales-tax bonds.
The notes sold Friday are guaranteed by the commonwealth and come due in June, with $700 million carrying an annualized interest rate of 7.75% and another $200 million structured as a revolving line of credit and bearing an interest rate of 7.55% over the London interbank offered rate, or Libor.
The island’s Government Development Bank will use the $900 million to buy the same amount of tax- and revenue- anticipation notes from the commonwealth. The bank also will buy another $300 million in notes, as it has in prior years, bringing the total size of the deal to $1.2 billion, according to the release.
In total, Puerto Rico has about $73 billion of debt, which is widely held by mutual funds, hedge funds and individuals. The island needs to tap credit markets again to cover expenses, including more than $1.2 billion in debt service due this year, Mr. Donahue said.
By selling new bonds, Puerto Rico buys itself time to restart the economy, plug its budget deficit and restructure the Puerto Rico Electric Power Authority, which owes about $9 billion.
In March, Puerto Rico tapped public credit markets, borrowing $3.5 billion at an interest rate of 8%. That sale, which was seen as crucial to the new administration of Gov. Alejandro Garcia Padilla, came after major credit-rating firms downgraded Puerto Rico to junk status.
Write to Aaron Kuriloff at AARON.KURILOFF@wsj.com

Tuesday, September 30, 2014

58% of Florida Puerto Ricans: Make Territory a State Based on 2012 Vote

58% of Florida Puerto Ricans: Make Territory a State Based on 2012 Vote 

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new poll found that 57.6% of people of Puerto Rican origin in central Florida believe that Puerto Rico should be made a State based on the territory’s vote for the status in November 2012.
Only 30.4% of those questioned in a scientific survey thought that there was a need for another plebiscite among all of Puerto Rico’s status options, including the current territory status sometimes misleadingly called “commonwealth.”
Issue Would Sway Their Vote
Candidates for public office who support statehood or a choice between statehood and nationhood are far more likely to win the votes of central Floridians of Puerto Rican origin, according to the random sample.
Asked to rate the odds of voting for candidates for public office based on various positions on the status of Puerto Rico, with 0 representing “extremely unlikely” and 10 being “extremely likely,” supporting statehood for the territory scored 8.1, and backing a bill that guaranteed it statehood got 7.5.
Advocating legislation for a vote to resolve the issue of the territory’s ultimate status — a choice between statehood and nationhood — was an even better way for a candidate to win the vote of central Florida Puerto Ricans: They rated the odds of supporting such a political figure at 8.3.
Backing the current status of the Commonwealth, however, drove the odds of a candidate winning their votes down to 4.6.
Statehood First Choice of 64%
The results were consistent with other findings of the survey by a top national political polling company. Sixty-four percent identified statehood as their preference for Puerto Rico’s status.
Federal Action Important to 85%
A total of 85% of the Florida citizens of Puerto Rican origin polled view presidential and congressional action to resolve the question of Puerto Rico’s ultimate status as important. It was “Extremely important” to 37%, “Very Important” to 39%, and “Somewhat important” to 9%.
Only 9% of those surveyed regarded Federal action on the issue as “Not very important” and just two percent answered “Not important.”
Statehood Would Make 81% Proud
A full 81% would be “proud” if the territory became a State. Asked if they agree with the statement that Puerto Rican statehood would make them proud, 60% of those polled answered that they would be “strongly agree” proud, and 21% responded that they would be “somewhat” agree,
Only 15% did not agree, nine percent “strongly,” and six percent “somewhat.”
The responses show that many people of Puerto Rican origin who are not advocates of statehood for Puerto Rico would be happy if the territory becomes a State.
National Political Importance
The poll results are of national political importance. Florida is a State so closely divided between Democrats and Republicans that it is widely considered a ‘swing’ State in presidential elections. It is so populous that it can also swing national elections one way or another.
Additionally, voters of Puerto Rican origin are considered by news and political analysts to be the “swing vote” of this swing State. They have voted for and elected both Republicans and Democrats.
Their numbers are increasing rapidly as migration from the territory to the States has totaled about 1,000 a week in recent years. Most islanders move to Florida, and most of those go to the ‘I-4 corridor’ running from the Orlando area to Tampa, the area of the survey.
The U.S. Census Bureau estimates that there were 987,663 people of Puerto Rican origin in Florida as of July 1st, 2013. It counted 847,550 in 2010 and 482,027 in 2000. The 2000 count was double the number of people of Puerto Rican origin in 1990, according to the Census.
76% for Statehood: Yes or No Vote
The percentage of citizens of Puerto Rican origin favoring a “Statehood: Yes or No” plebiscite was also overwhelming: 76%.
Puerto Rico statehood party president Pedro Pierluisi, the Commonwealth’s representative to the Federal government, has proposed such a vote. As the sole voice of the territory of 3.6 million people in the U.S. House of Representatives, he has led 131 other members of the House in sponsoring a bill that would provide for an insular vote on statehood.
The bill has sponsors from both national parties, including all Florida Democrats and several Florida Republicans. Most sponsors, however, are Democrats.
Three U.S. senators have sponsored a companion bill. All Democrats, they were led by Martin Heinrich (D-NM). Neither of Florida’s senators are sponsors.
“Commonwealth” Party Opposition
Puerto Rico Governor Alejandro Garcia Padilla and most of his “commonwealth” party members who control the territorial Legislative Assembly oppose a vote on statehood, but some party leaders do not. They include Garcia Padilla’s predecessor as party president, former insular House of Representatives Minority Leader Hector Ferrer, who has hinted that he may challenge Garcia for the governorship in 2016.
The “commonwealth” party leadership is united, however, in its refusal to accept the validity of the 2012 plebiscite conducted under territorial law and the vote’s results. It supported the current territory status rejected in the plebiscite and failed in its effort to defeat statehood in the vote.
Federal Status Resolution Law
The “commonwealth” party’s refusal to accept the plebiscite’s results led to President Obama proposing and the Congress in January passing legislation for a plebiscite on status options that can resolve the question of the territory’s ultimate status and do not conflict with the Constitution, laws, and policies of the United States.
Puerto Rico’s Elections Commission would make a proposal for the options but the U.S. Department of Justice would have to find that the alternatives meet the requirements of the Federal law. The Justice Department approval would make it awkward for a losing party to dispute the results, as the “commonwealth” party leadership has done regarding the 2012 plebiscite results.
Thirty percent of those questioned in the poll were aware that the Federal government had enacted the law for another plebiscite, although limited to real statuses that can resolve the issue.
The Poll
The poll was conducted by Voter Consumer Research. It is being released in stages by a new Website,www.pr51st.com.
People were questioned between August 20th and September 4th. Ninety-two percent were registered voters.
Voter Consumer Research says that the survey has a potential accuracy variance of plus or minus 4.9% — an amount that would hardly matter given the lopsided nature of the results.
The firm has been praised for the accuracy of its polls by the two national political analysts not identified with a political party who may be the most highly regarded in the field, Charlie Cook and Stuart Rothenberg.
Read the whole story
 
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US Attorney General’s Role in Federal Plebiscite Law Praised

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Puerto Rico’s representative to the Federal government noted that the U.S. Department of Justice under Attorney General Eric Holder had proposed a Federal law providing for a plebiscite on the territory’s political status.
The legislation enacted into law in January is for a vote on options that can resolve the question of the territory’s ultimate status.
Resident Commissioner Pedro Pierluisi made the statement in response to Holder’s announcement that he would soon leave the job.
The statehood party president pointed out that “Attorney General Holder requested that Congress appropriate $2.5 million to enable Puerto Rico to conduct the first Federally-sponsored status vote in the territory’s history, to be held among one or more options that are consistent with the U.S. Constitution, Federal law and public policy.”
He went on to say that “This appropriation, which became law in January 2014, is the most important step that the Federal government has ever taken to resolve Puerto Rico’s political status.”
In a 2012 plebiscite under local law, Puerto Ricans rejected the territory’s current status, sometimes misleadingly called “commonwealth” by 54%, with 61.2% choosing statehood as the alternative.
The Commonwealth’s governor and majorities in the Legislative Assembly elected at the same time, however, dispute the plebiscite and have refused to honor the results. They had supported the losing current territory status in the plebiscite.
Fearing that their opposition would thwart the self-determination will of the people of Puerto Rico, the Obama Administration proposed a plebiscite under Federal law.  Congress, on a bipartisan basis, agreed.
The 2012 plebiscite was the fourth status vote that Puerto Rico has held.  The first was in 1967.
It was, however, the first plebiscite limited to possible statuses. The three earlier votes were confused by “commonwealth” proposals that Federal officials of both national political parties later said were impossible for constitutional or other reasons.
U.S. Justice Department will have to agree to the options for the Federally-authorized plebiscite to ensure that the proposals can finally resolve the territory’s status question and do not conflict with U.S. law and policy.
Pierluisi, a national Democrat, has led 131 other members of the U.S. House of Representatives of both national parties and three U.S. senators in proposing that the new plebiscite be a simple vote on statehood. His proposal has been endorsed by others, including Republican National Committee Chairman Reince Priebus.
Governor Alejandro Garcia Padilla opposes the idea, however. He wants the new vote to be on all of the territory’s status options — including a new “commonwealth status.”
The U.S. Justice Department under Holder has advised that Puerto Rico would remain a territory under any “commonwealth” arrangement, so Garcia’s proposal would not meet the requirement of the Federal law that the options be able to resolve Puerto Rico’s political status issue.
So many leaders of the Governor’s “commonwealth” party want Puerto Rico to become a nation with the benefits of a U.S. status and oppose Garcia’s continued “commonwealth” territory status that the Legislative Assembly has not acted on his call for it to pass legislation for the plebiscite.