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All eyes are on Chesapeake.

The price of natural gas in the US has gotten completely destroyed. The process started in July 2008, at over $13 per million Btu and continues through today, at $1.77 per million Btu.

In between, natural gas traded at prices that, for much of the time, didn’t allow drillers to recoup their investments, leading to permanently cash-flow negative operations, and now huge write-offs and losses, defaults, restructurings, and bankruptcies.

You’d think that this sort of financial misery would have caused investors to turn off the spigot, and for production to fall because drillers ran out of money before it got that far.

But no. Over the years, money kept flowing into the industry. In this Fed-designed world of zero interest rate policies, when risks no longer mattered, drillers were able to borrow new money from banks and bondholders and drill that money into the ground, and production soared, and more money poured into the industry based on Wall Street hoopla about this soaring production, and this money too has disappeared.

In the process, the US has become the largest natural gas producer in the world – and the place where the most money ever was destroyed drilling for natural gas.

But now the spigot is being turned off. And much of the industry is heading toward default and bankruptcy. Granted, the largest producer in the US, Exxon, has apparently bigger problems on its global worry list than the misery in US natural gas. Its stock is down only 25% since June 2014, and its credit rating is still AAA. But even if it gets downgraded a couple of notches, Exxon can still borrow new money to fund its operations, dividends, and stock buybacks, and service its existing debt.

But the rest of the industry – along with its investors and banks – is sinking deeper into fiasco.

…click on the above link to read the rest of the article…

Ukraine “Crooks” Default On $3 Billion Bond To Putin

December 18, 2015

Ukraine “Crooks” Default On $3 Billion Bond To Putin

Back in August, Ukraine struck a restructuring agreement on some $18 billion in Eurobonds with a group of creditors headed by Franklin Templeton.

Under the terms of the deal, Kiev should save around $4 billion once everything is said and done. That was the good news. The bad news was that Ukraine still owed $3 billion to Vladimir Putin. Here’s what we said at the time:

“..owing Vladimir Putin $3 billion is not a situation one ever wants to find themselves in, but this particular case is exacerbated by the fact that Putin did not loan the money to Ukraine as we know it now, he loaned the money to a Ukraine that was governed by Russian-backed Viktor Yanukovych. Of course Yanukovych was run out of the country last year following a wave of protests (recall John McCain’s infamous speech at Maidan).”

Ukrainian finance minister Natalie Jaresko offered the same restructuring terms to Russia that it offered to Franklin Templeton and T. Rowe. In effect, Jaresko was attempting to tell Vladimir Putin that Ukraine would allow him to take a 20% upfront loss on the $3 billion he loaned to Yanukovych who was overthrown by the current Ukrainian government with whom Moscow is effectively at war.

As you might imagine, Putin was not at all interested. Last month, Moscow “generously” offered to accept $1 billion per year from now until 2018 (so, a “restructuring” at par). Kiev refused, noting that such a deal would violate the country’s agreement with its other creditors.

Earlier this week, the IMF ruled that the debt to Russia was intergovernmental (as opposed to private). “In the case of the Eurobond, the Russian authorities have represented that this claim is official. The information available regarding the history of the claim supports this representation,” the Fund said, in a statement.

…click on the above link to read the rest of the article…

The IMF Changes its Rules to Isolate China and Russia

December 18, 2015

The IMF Changes its Rules to Isolate China and Russia

IMF-nameplate

The nightmare scenario of U.S. geopolitical strategists seems to be coming true: foreign economic independence from U.S. control. Instead of privatizing and neoliberalizing the world under U.S.-centered financial planning and ownership, the Russian and Chinese governments are investing in neighboring economies on terms that cement Eurasian economic integration on the basis of Russian oil and tax exports and Chinese financing. The Asian Infrastructure Investment Bank (AIIB) threatens to replace the IMF and World Bank programs that favor U.S. suppliers, banks and bondholders (with the United States holding unique veto power).

Russia’s 2013 loan to Ukraine, made at the request of Ukraine’s elected pro-Russian government, demonstrated the benefits of mutual trade and investment relations between the two countries. As Russian finance minister Anton Siluanov points out, Ukraine’s “international reserves were barely enough to cover three months’ imports, and no other creditor was prepared to lend on terms acceptable to Kiev. Yet Russia provided $3 billion of much-needed funding at a 5 per cent interest rate, when Ukraine’s bonds were yielding nearly 12 per cent.”[1]

What especially annoys U.S. financial strategists is that this loan by Russia’s sovereign debt fund was protected by IMF lending practice, which at that time ensured collectability by withholding new credit from countries in default of foreign official debts (or at least, not bargaining in good faith to pay). To cap matters, the bonds are registered under London’s creditor-oriented rules and courts.

On December 3 (one week before the IMF changed its rules so as to hurt Russia), Prime Minister Putin proposed that Russia “and other Eurasian Economic Union countries should kick-off consultations with members of the Shanghai Cooperation Organisation (SCO) and the Association of Southeast Asian Nations (ASEAN) on a possible economic partnership.”[2] Russia also is seeking to build pipelines to Europe through friendly instead of U.S.-backed countries.

…click on the above link to read the rest of the article…

The zombie apocalypse in oil: Why it’s a bad sign for all of us

December 14, 2015

The zombie apocalypse in oil: Why it’s a bad sign for all of us

The dramatic drop in oil prices has created what are called “zombie” companies, oil companies which can still afford to pay interest on huge debts, but little else. If oil prices stay low, the problem is likely to spread and become an economic zombie apocalypse for much of the industry and the communities and countries that depend on it.

Meanwhile, consumers have rejoiced as cheap oil prices have led to cheap gasoline, diesel, heating oil and jet fuel. Both households and businesses are finally getting their revenge on the oil companies after a decade of high and rising prices.

But should those consumers be so sanguine? Can the low prices we are experiencing today be extrapolated far into the future? The conventional wisdom says yes. It claims that the American fracking boom of recent years has unleashed a flood of oil that will keep prices down for many years to come. Combine that with an undisciplined OPEC that pumps flat out and you get not a temporary dip in prices, but a new era of low-cost oil and oil products.

But the same facts can be interpreted as leading to serious future supply constraints and high prices, provided the world economy does not fall into a prolonged slump that would reduce oil demand.

Cheap financing fed the fracking boom. And, even though borrowed funds are still cheap, struggling oil companies are finding their bank lines of credit reduced and a bond market that is shunning their high-yield debt. With additional funds hard to raise, many independent companies are finding it difficult to drill new wells needed to make up for declining production from existing ones, around 40 per cent per year in the two largest tight oil formations–the Eagle-Ford in Texas and the Bakken in North Dakota–where fracking is the primary technology for extracting oil.

…click on the above link to read the rest of the article…

“On The Cusp Of A Staggering Default Wave”: Energy Intelligence Issues Apocalyptic Warning For The Energy Sector

November 28, 2015

“On The Cusp Of A Staggering Default Wave”: Energy Intelligence Issues Apocalyptic Warning For The Energy Sector

The Energy Intelligence news and analysis creator and aggregator is not one to haphazradly throw around hyperbolic claims and forecasts. So when it gets downright apocalyptic, as it did this week in a report titled “Is Debt Bomb About to Blow Up US Shale?”, people listen… and if they are still long energy junk bonds, they panic.

The summary:

“The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get?”

The full report by Paul Merolli, a senior editor and correspondent at Energy Intelligence:

Debt Bomb Ticking for US Shale

The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get and when? It increasingly looks like a number of the weakest companies will run out of financial stamina in the first half of next year, and with every dollar of income going to service debt at many heavily leveraged independents, there are waves of others that also face serious trouble if the lower-for-longer oil price scenario extends further.

“I could see a wave of defaults and bankruptcies on the scale of the telecoms, which triggered the 2001 recession,” Timothy Smith, president of consultancy Petro Lucrum, told a Platts energy conference in Houston last week.

…click on the above link to read the rest of the article…

Spain Braces for its Biggest Corporate Insolvency… Ever!

November 27, 2015

Spain Braces for its Biggest Corporate Insolvency… Ever!

Blood on the Bourse

Spain is about to experience its biggest corporate insolvency ever. Unlike Bankia and all of Spain’s other bankrupt savings banks, Abengoa, a Seville-based multinational specialized in renewable energy and “environmental services,” is unlikely to receive a taxpayer-funded bailout – at least not just yet, not with general elections looming in less than a month’s time.

Following yesterday’s announcement that the company was seeking preliminary protection from creditors, Abengoa’s bonds and shares went into freefall. It was a financial bloodbath. According to S&P Capital IQ LCD, its euro-denominated 8.5% notes due 2016 plunged 38.5 points to 25.5 cents on the euro, after having been up at 93 cents on the euro only two weeks ago.

The U.S. dollar-denominated paper also suffered huge price declines in block trades. The engineering “Finance” unit’s 8.875% notes due 2017 plummeted 42.5 points, to 16.5 cents on the dollar, while the pari passu7.75% notes due 2020 plunged from 45 before the announcement to 15 cents on the dollar.

On Spain’s benchmark stock index, the IBEX 35, Abengoa’s B shares – valued just over a year ago at €4 – plunged as much as 69% to €0.28 before staging a brief dead-cat bounce. At the time of writing today, the B shares have fallen a further 25%.

With total debt of nearly $9 billion and growing, Abengoa yesterday filed under article 5 bis of the Spanish insolvency law. As WOLF STREET reported a few months ago, the company was undone by its mad rush for growth at any cost as well as its unconstrained embrace of the dark arts of financialization.

Even if Abengoa was to find a last-minute guardian-angel investor to take up some of the slack, the chances of it being able to find enough cash to service its debt pile are rice-paper thin. The company’s losses, slumping shares, and difficulty accessing financing could generate “significant doubts” over its ability to keep operating, warned its chief auditor, Deloitte.

…click on the above link to read the rest of the article…

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

November 25, 2015

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

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.

…click on the above link to read the rest of the article…

Puerto Rico Faces “Public Unrest” As Cash Crunch May Leave Government Workers Unpaid

November 20, 2015

Puerto Rico Faces “Public Unrest” As Cash Crunch May Leave Government Workers Unpaid

Heavily indebted Puerto Rico was due to meet with representatives of its creditors on Friday in a desperate attempt to forge ahead with a plan to restructure some $72 billion in debt. No offer is expected to be made at the meetings in New York, but the commonwealth’s Government Development Bank says it hopes to provide creditors’ advisors with greater clarity on “the proposed restructuring process,” which GDB says “is a comprehensive plan that will benefit all parties while supporting the creation of a sustainable path forward.”

As Reuters notes, “creditors have been resistant to cuts to their repayment, insisting that Governor Alejandro Garcia Padilla’s administration do more to curb spending, boost government efficiency and promote economic growth.”

The GDB is facing a $354 million principal and interest payment on December 1 – some $270 million of that 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.”

Another $303 million comes due one month later on January 1.

GDB called Friday’s meeting with consultants and advisers “part of our continued effort to maintain a constructive and open dialog with our key stakeholders” while a spokesperson for the governor promised Puerto Rico is doing everything in its power to make the December 1 payment although Padilla has repeatedly made clear that if it comes down to defaulting or cutting off services to the people, bondholders will be out of luck.

Here’s a bullet point summary of recent developments from BofAML:

On 6 November, Puerto Rico released its unaudited quarterly financial and operating report. In the report, Puerto Rico makes plain that it faces a near-term liquidity crisis, has too much debt, limited ability to raise revenues, and a near-decade-long recessionary economy.

…click on the above link to read the rest of the article…

America Disregarded 4,000 Years of History In Responding to the Great Recession

November 15, 2015

America Disregarded 4,000 Years of History In Responding to the Great Recession

We’ve known for over 4,000 years that debts need to be periodically written down, or the entire economy will collapse.

After all, debt grows exponentially … while economies only grow in an s-curve.

The ancient Sumerians and Babylonians, the early Jews and Christians, the Founding Fathers of the United States and others throughout history knew that private debts had to be periodically forgiven.

Debt jubilees are a vital part of the Christian and Jewish faiths. And the first recorded word for “freedom” anywhere in the world meant “debt-freedom”.

Two prominent economists – Professor of economics and director of the Julis-Rabinowitz Center for Public Policy and Finance at Princeton University (Atif Mian), and Chicago Board of Trade Professor of Finance at the University of Chicago Booth School of Business and co-director of the Initiative on Global Markets (Amir Sufi) – wrote last year:

Debt forgiveness makes a lot of sense when the economy experiences a large-scale negative shock that is beyond the control of any one individual.

History seems to understand this lesson well. The 48th provision of the Code of Hammurabi, written more than 3,500 years ago in Mesopotamia, states that: “If any one owe a debt for a loan, and a storm prostrates the grain, or the harvest fail, or the grain does not growth for lack of water, in that year he need not give his creditor any grain, he washes his debt-tablet in water and pays no rent for this year.” The main threat to economic activity in ancient Mesopotamia was a drought, and one of the first legal codes understood that debt should be forgiven if such a negative shock occurred.

In 1819 when agricultural prices in the United States plummeted leaving farmers overly indebted and unable to pay their mortgages, politicians ran to their defense. Many state governments immediately imposed moratoria on debt payments and foreclosures.

…click on the above link to read the rest of the article…

A Step Forward for Sovereign Debt

November 11, 2015

A Step Forward for Sovereign Debt

Every advanced country has a bankruptcy law, but there is no equivalent framework for sovereign borrowers. That legal vacuum matters, because, as we now see in Greece and Puerto Rico, it can suck the life out of economies.

In September, the United Nations took a big step toward filling the void, approving a set of principles for sovereign-debt restructuring. The nine precepts – namely, a sovereign’s right to initiate a debt restructuring, sovereign immunity, equitable treatment of creditors, (super) majority restructuring, transparency, impartiality, legitimacy, sustainability, and good faith in negotiations – form the rudiments of an effective international rule of law.

The overwhelming support for these principles, with 136 UN members voting in favor and only six against (led by the United States), shows the extent of global consensus on the need to resolve debt crises in a timely manner. But the next step – an international treaty establishing a global bankruptcy regime to which all countries are bound – may prove more difficult.

Recent events underscore the enormous risks posed by the lack of a framework for sovereign debt restructuring. Puerto Rico’s debt crisis cannot be resolved. Notably, US courts invalidated the domestic bankruptcy law, ruling that because the island is, in effect, a US colony, its government had no authority to enact its own legislation.

In the case of Argentina, another US court allowed a small minority of so-called vulture funds to jeopardize a restructuring process to which 92.4% of the country’s creditors had agreed. Similarly, in Greece, the absence of an international legal framework was an important reason why its creditors – the troika of the European Commission, the European Central Bank, and the International Monetary Fund – could impose policies that inflicted enormous harm.

…click on the above link to read the rest of the article…

The Next Debt-Clearing ‘Super Cycle’ Starts Now

November 11, 2015

The Next Debt-Clearing ‘Super Cycle’ Starts Now

We are in the early stages of a great debt default – the largest in U.S. history.

We know roughly the size and scope of the coming default wave because we know the history of the U.S. corporate debt market. As the sizes of corporate bond deals have grown over time, each wave of defaults has led to bigger and bigger defaults.

Here’s the pattern.

Default rates on “speculative” bonds are normally less than 5%. That means less than 5% of noninvestment-grade, U.S. corporate debt defaults in a year. But when the rate breaks above that threshold, it goes through a three- to four-year period of rising, peaking, and then normalizing defaults. This is the normal credit cycle. It’s part of a healthy capitalistic economy, where entrepreneurs have access to capital and frequently go bankrupt.

If you’ll look back through recent years, you can see this cycle clearly…

In 1990, default rates jumped from around 4% to more than 8%. The next year (1991), default rates peaked at more than 11%. Then default rates began to decline, reaching 6% in 1992. By 1993, the crisis was over and default rates normalized at 2.5%. Around $50 billion in corporate debt went into default during this cycle of distress.

Six years later, in 1999, the distress cycle began to crank up again. Default rates hit 5.5% that year and jumped again in 2000 and 2001 – hitting almost 8.7%. They began to fall in late 2002, reaching normal levels by 2003.

Interestingly, the amount of capital involved in this cycle was much, much larger: Almost $500 billion became embroiled in default. The growth in risky lending was powered by the innovation of the credit default swap (CDS) market. It allowed far riskier loans to be financed. As a result, the size of the bad corporate debts had grown by 10 times in only one credit cycle.

The most recent cycle is the one you’re most familiar with – the mortgage crisis.

…click on the above link to read the rest of the article…

Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves

November 9, 2015

Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves

In late October, when describing Venezuela’s desperate steps to keep itself afloat for a few more months, we reported that in order to fund $3.5 billion bond payments in early November, Maduro’s government had engaged in something that is the very definition of insanity: selling the country’s sovereign (and pateiently repatriated by his deceased predecessor) gold to repay creditors.

Specifically, in the past several months, Caracas has quietly parted with 19% of its gold holdings: “Central bank financial statements posted this week on its website show monetary gold totaled 91.41 billion bolivars in January and 74.14 billion bolivars in May. At the strongest official exchange rate of 6.3 bolivars per U.S. dollar, which the bank uses for its financial statements, that decline would be equivalent to $2.74 billion.”

But while ridiculous, Venezuela’s decision to liquidate some of its gold is perhaps understandable under the circumstances: Venezulea relies on crude oil for 95% of its export revenue, and with prices refusing to rebound, the only question is when do all those CDS which price in a Venezuela default finally get paid.

What is even more understandable is what Venezuela should have done in the first place before dumping a fifth of its gold, but got to do eventually, namely raiding all of the IMF capital held under its name in a special SDR reserve account.

Recall that this is precisely what Greece did in July when everyone was speculating when it would default. Now its Venezuela’s turn.

The details: Reuters reports that Venezuela withdrew some $467 million from an IMF holding account in October, according to information posted on the fund’s web-site, as the OPEC nation seeks to improve the liquidity of its reserves amid low oil prices and a severe recession.

…click on the above link to read the rest of the article…

Next Few Weeks Will Reveal Full Extent Of Oil Industry Suffering

October 27, 2015

Next Few Weeks Will Reveal Full Extent Of Oil Industry Suffering

Get ready for some bad news and red ink.

With the bulk of quarterly earnings reports in the energy industry yet to be announced, there are already $6.5 billion worth of asset write-downs, according to Bloomberg. And that could be just the tip of the iceberg. A Barclays’ assessment last week predicted $20 billion in impairment charges from just six companies.

Write-downs occur when the expected future cash flow from an asset falls sufficiently that a company has to report that the asset has lost some of its value. With oil prices half of what they were from mid-2014, oil and gas fields around the world are no longer worth what they used to be. Some oil fields that were previously expected to produce in the future may no longer even make sense to develop given current oil prices. As a result, investors should expect billions of dollars in further write-downs in the coming weeks.

Persistently low oil prices are putting a lot of pressure on the dividend policies of oil and gas producers. The Wall Street Journal reported that four oil majors – BP, Royal Dutch Shell, ExxonMobil, and Chevron – have a combined cash flow deficit of $20 billion for the first half of 2015. In other words, these big players are not earning enough revenues to cover expenditures, share buybacks, and dividends. With such a large cash flow deficit, something has to give. All four are focusing on slashing spending in order to preserve their promises to shareholders, with dividends especially seen as untouchable.

However, it could take several years to bring spending into alignment so that cash flows breakeven. The problem for these companies is that they were also cash flow negative even when oil prices were above $100 per barrel in the years preceding the bust in 2014.

…click on the above link to read the rest of the article…

Treasury Warns Of “Humanitarian Crisis” In Puerto Rico If Congress Does Not Agree To Bailout

October 22, 2015

Treasury Warns Of “Humanitarian Crisis” In Puerto Rico If Congress Does Not Agree To Bailout

“Puerto Rico is not Greece“… but it increasingly looks like it will be in a few weeks, thanks to US taxpayers who are about to foot the bill for yet another creditor bailout.

As we reported last night, creditors of the insolvent commonwealth, hoping to get a bailout and the highest possible return on their bond investment courtesy of the US taxpayer, have been pushing to portray the fiscal situation in Puerto Rico as beyond repair, hoping to force the administration and Congress to act. As The NY Times reported, on Wednesday, Puerto Rico took the unusual step of announcing that talks over restructuring about $750 million of the island’s debt had broken off, a move that some creditors saw as posturing to Washington for help.

Then, all day today, Puerto Rico’s leadership, realizing its interests are suddenly alligned with those of its creditors as a bailout is in everyone’s best interest, took the rhetoric up a notch when the island’s Governor Alejandro Garcia Padilla said in written testimony for Senate Energy Committee that Puerto Rico will have negative cash balance of $29.8 million in November 2015, and then added that the Puerto Rico Government Development Bank may be unable to make its $355 million debt service. “These GDB bonds are supported by a guarantee from the Commonwealth, and the GDB, which faces its own liquidity crisis, is not expected to be able to make the payment on its own based on current information.”

Others quickly chimed in: Puerto Rico Senate President Eduardo Bhatia said he would be in favor of “including everything” in a broad, comprehensive restructuring of the debt.

In short: bail us out now or face the consequences of a domino effect of defaults which puts not only the creditors, but the island itself, in dire straits.

…click on the above link to read the rest of the article…

Obama Unveils Roadmap To ‘Bailout’ Puerto Rico: “New” Bankruptcy Rules & Federal Fiscal Oversight

October 22, 2015

Obama Unveils Roadmap To ‘Bailout’ Puerto Rico: “New” Bankruptcy Rules & Federal Fiscal Oversight

America is not Greece, but judging from the Obama administration’s just-unveiled plans to bailout Puerto Rico’s disastrous debt situation, the American territory may have to sacrifice a little more sovereignty to get some relief. Obama is pressing for Congress to give Puerto Rico (PR) sweeping powers to reduce its $73 billion debt burden through a form of bankruptcy protection not now available to American territoriesand will also ask lawmakers to establish an independent body to monitor the island’s fiscal affairs (a la Troika). While the proposals likely face an uphill battle in Congress, as NYTimes reports, both Democrats and Republicans are under pressure to respond because Puerto Ricans are flooding the US, particularly in central Florida, and are becoming an increasingly important voting block in the 2016 presidential race.

Puerto Rico is teetering under debt amassed from years of borrowing as the economy failed to grow and residents left for the U.S. mainland. Governor Alejandro Garcia Padilla is seeking to persuade investors to accept less than they’re owed, saying tax increases and spending cuts alone won’t be sufficient to eliminate the government’s budget shortfalls.

Creditors say that the island’s government has been seeking to portray the fiscal situation in Puerto Rico as beyond repair, hoping to force the administration and Congress to act. As The NY Times reports, on Wednesday, Puerto Rico took the unusual step of announcing that talks over restructuring about $750 milllion of the island’s debt had broken off, a move that some creditors saw as posturing to Washington for help.

It appears to have worked… (as Bloomberg details)

President Barack Obama is pressing for Congress to give Puerto Rico sweeping powers to reduce its $73 billion debt burden through bankruptcy, escalating administration involvement as the Caribbean island’s access to cash dries up.

…click on the above link to read the rest of the article…

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