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Puerto Rico Debt Bomb About To Explode: “Social Unrest May Be Unavoidable”

Tyler Durden
November 27th, 2015
Zero Hedge
Comments (73) Read by 10,782 people

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This article was written by Tyler Durden and originally published at Zero Hedge.

Editor’s Comment: Once again we see the failure of the system with Puerto Rico which took on more debt than it could possibly repay; we see the failures of the bloated system of socialism, which will now fail its welfare recipients, its pension holders and its people in general. Like so many other places in the world, we are about to see the recipients of easy credit feel the crunch when it all comes due, and there is no way in hell to repay.

Puerto Rico is almost certain to default and the debt could set off a tidal wave of contagion that could drag down the world financial system; in the meantime it will be the United States’ problem to deal with, yet another liability for the overburdened taxpayers of America. The system is rigged for failure, and the hot potato is just being passed around. Which crisis will crash it all? Who knows, just keep moving…

Puerto Rico Is About To Default: Your Complete Guide To An Island Debt Debacle

by Tyler Durden

Last week, we brought you the latest from Puerto Rico’s debt debacle. The commonwealth is desperately trying to restructure some $72 billion in debt while staring down a $354 million bond payment due on December 1.

As we discussed at length on Friday, some $270 million of what’s due next week is GO debt guaranteed by the National Public Finance Guarantee Corp. Defaulting on that is bad news and as Moody’s warned earlier this month, a missed payment on the commonwealth’s highest priority obligations “would likely trigger legal action from creditors, commencing a potentially drawn-out process absent swift federal intervention.” 

Make no mistake, federal intervention is likely to be anything but “swift.”

A Senate judiciary committee headed by Iowa Republican Charles Grassley will meet on December 1 to discuss a legislative proposal to assist the Padilla government, but it’s hard to imagine that a decision will be made in time to avert at least a partial default.

Ultimately, the decision will be between paying bondholders and ensuring that the government can continue to provide public services, and just as Greece prioritized pensions over IMF payments last summer, Padilla isn’t likely to sacrifice the public interest at the altar of the island’s debtors. 

So, as the clock ticks, we bring you the following helpful guide courtesy of Bloomberg who has made a “list of the island’s debt, how much is outstanding, when major monthly payments are due, and the source of funds that back the securities.”

*  *  *

From Bloomberg

  • Puerto Rico Sales Tax Financing Corp.: $15.2 billion. The bonds, known by the Spanish acronym Cofinas, are repaid from dedicated sales-tax revenue. A $6.2 billion portion of the debt, called senior-lien, is repaid first. The remaining $9 billion, called subordinate-lien, get second dibs. $1.2 million of interest is due in February and again in May. Senior Cofinas maturing in 2040 last traded for an average yield of 9.5 percent, while subordinate ones yielded 18 percent.
  • General-obligations: $12.6 billion. The debt backed by the commonwealth’s full faith and credit. The island’s constitution says general obligations must be repaid before other expenses. Puerto Rico owes $357 million of interest in January and an additional $805 million of principal and interest is due July 1. Securities due in 2035 last traded for an average yield of 11.5 percent.
  • Puerto Rico Electric Power Authority: $8.2 billion. Prepa, as it’s called, is the island’s main supplier of electricity and repays the debt from what it charges customers. The utility owes $196 million of interest in January and $420 million of principal and interest July 1. Prepa is negotiating with bond-insurance companies after reaching an agreement with some of its bondholders, who agreed to take a 15 percent loss. Bonds maturing in 2040 last traded at an average yield of 9.2 percent.
  • Puerto Rico Government Development Bank: $5.1 billion. The GDB lends to the commonwealth and its localities. When those loans are repaid, the bank can pay off its debt. The bank owes $354 million in December and $422 million in May. Federally taxable bonds maturing in 2019 last traded for an average yield of 57 percent.
  • Puerto Rico Highways & Transportation Authority: $4.6 billion. The highway agency repays its debt with gas-tax revenue. It owes $106 million of interest in January and $220.7 million of principal and interest in July. The commonwealth has the ability to divert revenue that cover some highway bonds to pay its general-obligation securities, if there are no other available resources, according to the island’s most recent financial disclosure. Bonds maturing July 2028 last traded for an average yield of 32 percent.
  • Puerto Rico Public Buildings Authority: $4.1 billion. The PBA bonds are repaid with lease revenue that public agencies pay for their office buildings. The agency owes $102.4 million of interest in January and $208 million of principal and interest in July. Bonds maturing 2042 last traded for an average yield of 10.4 percent.
  • Puerto Rico Aqueduct & Sewer Authority: $4.1 billion. The utility, called Prasa, supplies most of the island’s water. The debt is repaid from water rates charged to customers. The water agency owes $86.5 million of interest in January and $135.1 million of principal and interest in July. Bonds maturing in 2042 last traded at an average yield of 8.7 percent.
  • Puerto Rico Pension-Obligation Bonds: $2.9 billion. The taxable debt was sold to bolster the island’s nearly depleted pension fund. The bonds are repaid from contributions that the commonwealth and municipalities make to the retirement system. The system pays $13.9 million of interest every month in this budget year. Securities maturing in 2038 last traded for an average yield of 22 percent.
  • Puerto Rico Infrastructure Financing Authority: $1.9 billion. Called Prifa, the agency has sold the island’s rum-tax bonds. These are securities repaid from federal excise taxes on rum made in Puerto Rico. Prifa owes $37.2 million of interest in January and $77.8 million of principal and interest in July. Bonds maturing in 2046 last traded for an average yield of 28 percent.
  • Puerto Rico Public Finance Corp.: $1.09 billion. The bonds are repaid with money appropriated by the legislature. The agency has defaulted every month since August on its debt-service payments because lawmakers failed to allocate the funds. It owes interest every month, the largest being a $24 million payment in February. Bond maturing in 2031 last traded for 7 cents on the dollar, according to trade reports. The yield wasn’t disclosed.

*  *  *

As a reminder, Puerto Rico’s Treasury Single Account likely has negative cash balance, which, according to Height Securities analyst Daniel Hanson, “will make it ‘nearly impossible’ to meet all government payroll obligations over the next six weeks.”

In other words, even if the government does default in order to save money for the provision of public services, social unrest may now be unavoidable.

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Author: Tyler Durden
Views: Read by 10,782 people
Date: November 27th, 2015
Website: http://www.zerohedge.com/news/2015-11-25/puerto-rico-about-default-heres-your-complete-guide-island-debt-debacle

Copyright Information: This content has been contributed to SHTFplan by a third-party or has been republished with permission from the author. Please contact the author directly for republishing information.

73 Comments...

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  1. Jacknife says:

    JM Bullion has a Black Friday sale going on that is worth looking at. There are also some great beat down vids of shopping victims if you have nothing to do and want to laugh a little. Now I’m taking the little guy to the range.

  2. At the Last Straw says:

    The world’s house of cards is about to fall; why the winds are picking up from all directions. Only one thing comes to this old mans mind: Herman Wouk’s– The Winds of War.

    Be ready for it is here!

    • Acid Etch says:

      THE RUNNING OF THE SHEEP 2015

      Happy Thanksgiving motherfuckers!

      Be sure to stuff your huge fucking paunches with 4,500 calories as you bitch and whine about how healthcare is so expensive; as you listen to your shit stupid relatives tell you how Syrian refugees are really the same as pilgrims from the Mayflower. Immigrants don’t cost any money to the white taxpayers or anything.

      Then go spend $800 on plastic shit from China nobody needs as you bitch about how Americans don’t have jobs and we don’t manufacture anything. Trample Walmart employees to death exactly one day after giving thanks.

    • retired says:

      The whole place will lose 50% of it’s population.All of the Puerto Rican’s will head north to resettle with their cousins up in Mainland USA.All they need to do is change their address & collect their welfare checks in the states!

      • The money did not go to welfare… read the article. Infrastructure debt ends up in corporate pockets.

        • Colesdad says:

          you don’t know what you are talking about. I ran tarpon trips in san juan bay(where you flyover entering and exiting…think that’s the only privately owned bridge in “USA” whatever that is these days.Their housing projects were massive in ’10. Cops would not even enter them.

          • Who made money on those housing projects? Corporations. They are always substandard and shoddy but taxpayers pay full bore for them. How did food stamps come about? They were tied to corporate farming supports and when food stamps were decreased, Walmart stopped making massive profits. These are all corporate transfer payments. You cannot honestly admit there are not enough jobs for everyone who needs one… then call everyone without a job lazy. I just retired but I worked a lot of years in the big law firms that helped their corporate masters game the system. The most irritating part of this sleaze operation is how easy it has been for corporations to convince ninnies that everything wrong is some welfare cheats fault and that the rich and powerful got that way through hard work instead of by subborning government officials. Do you think all 20 Republican candidates want to serve you? They want on the Koch Brothers gravy train. Even presidential candidates can make millions. Off sheep who buy in… and pay taxes for transfer payments to the rich and corrupt.

  3. areyouready? says:

    Wait; hold on a minute. You mean this nation has the only money printing presses in town?? 🙁

  4. Nobama says:

    That’s what happens when you use debt to pay for everything.

  5. rednek101 says:

    Oh come on. All ya gotta do is start printing money. No problemo. Need a couple billion? Crank up the printin’ presses.

  6. Anonymous says:

    What you see happening in Puerto Rico is what you will see happening here sometime in the foreseeable future.

    Pay close attention to it, it will show you what you will actually have to be dealing with here when it happens.

    Forewarned is forearmed to the wise.

    • Nobama says:

      It already is happening here. Many, many cities issue bonds and more bonds to pay for everything, and the interest just keeps adding up. And while no one is held accountable for this outrageous negligence, the taxpayers always get it in the end.

      We need a big CTRL-ALT-DEL to finally reset this country.

  7. slingshot says:

    Our earth is the biggest Bullshit Machine in the Universe. I can not imagine another intellectual creature being as full of it. Nothing happens without Bullshit. Our world thrives on Bullshit. We all put up with the Bullshit. The fact is if you hear a person say, “That’s Bullshit!”. He or she is most likely right.
    The accompanying part to that first phase is, “That ain’t Right”. We find ourselves saying those conjunctive phrases a lot lately.
    So whether it is the Yuan as a SDR. The interest rate hike by the Feds. The Possible Bail In and the Puerto Rico Debt Bomb.
    Many are going to utter in disgust, “That’s Bullshit”.

    Which brings me to what the next most popular phrase and that is,

    “You’re Right!”

  8. ArmageddonProof says:

    Puerto Rico: another failed American entity.

  9. smokey says:

    Looks like a good time to grant independence to PR.

  10. Stars & Bars says:

    I’ve done business all over Central/South America, plus many of the Caribbean islands. To me the most despicable people on earth are PR’s/Ricans/Pork Chops.

    Couldn’t happen to a nicer tribe of gutter scum!

  11. SpudWeb says:

    Screw Puerto Rico. They want all the rights of a state without the Responsibilities. They pay Very little, If any, Taxes to the U.S. yet they feel they are entitled to everything AND the Kitchen sink. Cut them off Cold turkey (no thanksgiving pun intended) and let them sink or swim.

  12. Coronado says:

    A preview of the movie coming to Your theater!

  13. Taxdn2poverty says:

    What not just say it like it is? The truth is, overpaid, under worked, stagnant, Government Employees have brought another country to its knees. It is that simple. Get rid of these obnoxious, unpayable government pensions worldwide and the people of the world can once again enjoy the fruits of their labors without the stranglehold of the ‘pensioners’. For the love of Christ, I cannot understand how the military and government employees can sit at home on their asses while their country dissolves under the weight of paying them to sit at home on their asses.

  14. Native Born American says:

    Nice knowing you PR. Now it’s time for you to leave. Bye!

  15. lol…call em whatever name you like.

    They are currently emigrating to Florida at the rate of 5000 a week. Being that they are already citizens there is no obstacle.

    There are two sides to every story and, yes, living above your means is one of those stories. Much like many of the municipalities on the mainland also do.

    However, the US basically set them up for failure. They “annexed” them from Spain in 1898 and turned them into a sugar colony (same with Cuba and the Philippines). The sugar companies took all the profits and paid the workers slave wages instead of re-investing in the island. See “War is a Racket” for reference.

    They became a tax haven in the 20th century when tax subsidies were set up and business relocated their headquarters there. Slick Willie cut these subsidies off in 1996 in a deal to help get re-elected. The business left.

    They have to import all their hydrocarbons for fuel and for most of their electricity. This is always a losing proposition. No business and no fuel and too many people with no work.

    They are coming to the mainland NOW…

    • Genius says:

      Looks like I need to buy stock in spray paint lol.

    • rellik says:

      “They have to import all their hydrocarbons for fuel and for most of their electricity. This is always a losing proposition. No business and no fuel and too many people with no work.

      They are coming to the mainland NOW…”

      Sounds like you are describing Hawaii. We are (for now) already a state, but are doing the same stupid socialism wise.

    • Plan twice, prep once says:

      PR is a perfect example of what happens when demographics collapse. PR because a mass exodus caused by a weakening global economy has made life in PR impossible, literally 30% of the population of PR has fled taking everything of value that they could take.

      This has left PR with a loss of productive people, plus the lost of any meager wealth they possessed. The type of people that left are the self starters, the type of people that would take a risk and start a business.

      As a state the PR economy has shrunk, driven by a shrinking population, this shrinkage is the final pressure causing its economic collapse. This is also happening across the US as a whole because our aging baby boomer population is shrinking the work force, though the baby boomers continue to consume at low levels. Consumption levels this low are recessionary, or worse deflationary when they are as large as the demographic shift the entire US is experiencing.

      This was the force that hit Japan decades ago that they still haven’t recovered from. Most of Europe is in various stages of the collapse Japan experienced. Germany is an EU King Pin, they not only are smashing headlong into the same demographic collapse they have this mass Jihadist immigrant wave washing over them.

      Puerto Rico is just the first domino to fall, this will spread to the other states. For more info on how demographics affects national and global economies search for and watch some of the YouTube videos done by Harry Dent.

      • Our corporate economy is predicated on endless growth. Not sustainable. Over 7 billion people and the only way out is to quit having so many babies and let the population age without 10 children to support old folks. This is a healthy shift, not the disaster economists are calling it. Too much melodrama. Japan is quietly increasing use of robots for caretaking. They also have a history of simpler lifestyles. I am setting up my small home and garden so that I need less brute labor, also known as youngsters. We have to create an economy that is based on something besides popping out baby consumers.

        What is with this endless wailing and kashmir of teeth over welfare that never mentions the massive corporate dole? GE receives nearly a trillion in welfare redistribution from American taxpayers, gets so many deductions they pay no tax, and is off shoring money. Two thirds of our Fortune 500 are doing the same. These are the people bleeding this country to death… of money, of jobs. We need to let them go… they are global megacorporations because our tax money made them so. Talk about the succubus.

        Look at PR debt. It mostly went down the corporate maw, to be paid for by taxpayers. The US spends massive amounts on the military-industrial complex, that needs a new war every year and our children as blood sacrifice to their profits. Welfare? These are bleeding us to death. What protection? Bombing Syria then flooding our country with the results? Friends like these are worse than enemies.

        I cannot believe the endless whining about social security as if billions didn’t pay into that their entire lives. How about corporations start paying in to their security fund to cover their endless welfare and bailouts?

        • Plan twice, prep once says:

          You are correct, pushing out babies makes an economy grow…. within limits though. In Africa they pour out the babies, who get little education, and whose greatest aspiration is to be stoned all the time, sleep and phuck.

          I’ve known people that did peace core work in Africa. They could motivate the people of a village to desire a well for clean water, and they understand its health benefits, but when it comes to picking up a shovel, he couldn’t get anyone to follow his example.

          After he dug the well they all drank from it. Health improved, mortality rates dropped and the population began to ballon! There subsequently wasn’t enough food?

          The cycle of ignorance continued, but on a larger scale because of the well he dug.

          WW2 helped spur the baby boomers. GI’s came back from war and wanted a bit more than they did as children of the Great Depression. They did, we had a boom, but then these things always do happen in cycles.

          Thus we prep for the lean years.

          • Some days I wish I could laze around and phuck. Instead I worked hard all those years and still keep working at improving my survival skills. No rest for the wicked they say.

            • Plan twice, prep once says:

              Around the holidays we get awfully busy. My wife and I always remind each other to schedule a little WE time. It helps renew our an important part of our lives and love.

              • I am glad to hear that. I never needed a reminder when I had my husband with me. He died many years ago and I have not remarried. Used to have a boyfriend but not at this time. That was just a little sad escaping. I don’t believe we are meant to be alone; however, better alone than in an unloving relationship. People are pretty harsh on each other these days instead of clinging together in love and companionship. Que sera sera.

                • Plan twice, prep once says:

                  I followed your link to your web site. You have done some fine work there. I book marked it for my reading list. Keep up the great work.

                  Life regularly gives all of us lemons, your brand of lemon-aid looks pretty good!

  16. BigB says:

    LOL, please sir pass the popcorn around. The world crumbles as we watch yet there are those even on this site who are still waiting for he sh*t to hit the fan.

    Very strange, it is happening but only a few can see it or recognize it. Very odd phenomenon.

    BigB

  17. Mike Radant says:

    Give it to Cuba!

  18. TEST says:

    “Socialism (lit. gouvernement in French) is the great fiction, whereby everybody endeavours to live off of everybody else.”
    – Frederic Bastiat, 1801-1850

    And, why yes, you are indeed correct! Our dear mutton-headed leftist friends have NO idea why this has never worked, will never work, and CAN never work… but that won’t stop them from trying again and again.. until we are all Detroit.

    Y’know Detroit. The only city you can walk 12 blocks and STILL be at the scene of the crime… and the first city to adopt the socialist Model Cities Program back 45 years ago or so.

    • Our mutton headed right wing cannot see that the Oligarchy is stealing everything not nailed down. Look at ANY financial chart of US money distribution and even a right wing mutton head could notice that socialism is not an issue in the USA. My son, the bank vice president cleared that up for me using published financial charts. Try facts, mutton chops, and you might get better results when you fight your battles. Of course, that little welfare mama who has no power is the REAL enemy, right? Snort. I believe all this focus on welfare is a cowardly dodge from facing the big Boyz down. After all, they own the military-industrial complex and can shoot you in the butt if you get on their nerves. Little welfare mama has no defense and can be kicked around to give cowards a thrill. Welfare yap is a diversion controlled by the big Boyz and goes away at their will. It is called the Roman circus and is used to suppress rebellion.

  19. Ketchupondemand says:

    OK, people, I’ll give updates as available. I live in the mts. near the west coast of PR.
    There’s a lot that can be said about PR and some of it is actually good. For one thing, I’ve been surfing my brains out lately and it sure gets you in great physical condition.
    At this point in life, the wife and I wouldn’t live anywhere else. Hey, we pay $44. a year property tax. Local fruit and vegetables are year round, plentiful and fairly cheap, as is fish.
    But in that article, one thing is key. “Government Development Bank”. Well, what else do ya need to know…when it starts with Gov’t.?
    I call it a kleptocracy.
    For example: Electrical workers wait until after 5:00 pm or a weekend to do a repair and bingo, overtime. Same with most all other local gov. employees.
    Everyone has been stealing from each other for so long it’s a way of life.
    Time to pay the piper. Actually, time to stiff the piper.
    The governor has said he won’t lay anyone off. Nepotism is mainstream.
    Money is wasted here on stupid projects, they run out before it’s complete, the roads are shit, businesses are closing everyday.
    Yeah, it’s going to be interesting.
    One more thing, the people here are, for the most part, friendly and welcoming. YMMV…once they go stateside, who knows.
    Glad we are prepped. But I could use a few ventilation team backups.

  20. lonelonmum says:

    Can Puerto Rico take the Icelandic solution without being blown to smithereens?

    If they can then they should be able to pull through. For all Cuba’s faults she has a LOT of expertise on how to feed her people and keep them healthy during tough times, and she’s proven over and over she’s willing to share that know how. Geographically the nation is well placed for renewable and sustainable energy production.

    The real challenge as always is the need for a change of mindset. A few lean hard working years should see them stronger and more sustainable than they’ve been since the days of the old sugar plantations. IF they can keep the banking vultures and military industrial complex from swooping in to steal all the nations assets from the people before they get the opportunity to start the reset. They have a better foundation to work with than Iceland.

  21. Frank Thoughts says:

    Can’t see a bad side to this. Used to visit there every couple of years to meet some ‘chicas’. If their price comes down, that has to be a good thing. Economic collapses always have a good side.

  22. Ketchupondemand says:

    yeah, I’d rather see a debt explosion for a SHTF event than nukes.
    Might be a better reset. Dollar implodes, derivatives blow up…at least we wouldn’t have radiation and fallout to survive.
    Wouldn’t that be better? 🙂

  23. I don’t see how an economic collapse from a small podunk country like P.R. can affect the US??

  24. rednek101 says:

    Puerto Rico is still a U.S. territory?

    PuertoRicoReport.com: With approximately 3.5 million residents, Puerto Rico is the most highly populated of all United States territories. People who are born in Puerto Rico are U.S. citizens.

    Lovely, now we get to pay off the debts of these deadbeats as well.