WEBVTT - Bloomberg's Chappatta on Puerto Rico's Imminent Default (Audio)

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<v Speaker 1>to market SAVY fifteen minutes throughout the trading day down

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<v Speaker 1>loss of half a percent to close at two sixty five.

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<v Speaker 1>Then as I fell thirty points two thirds of a

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<v Speaker 1>crude oil down eight cents of barrel to spot, gold

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<v Speaker 1>up thirty cents an ounce to twelve ninety and the

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<v Speaker 1>tenure treasury down to thirty seconds with the yield of

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<v Speaker 1>one point eight three percent. And that's a Bloomberg Business flash.

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<v Speaker 1>You're listening to Taking Stock with Kathleen Hayes and Pin

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<v Speaker 1>Fox on Bloomberg Radio. Puerto Rican Governor Alejandro Garcia Padilla

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<v Speaker 1>has said this week that there will be at default

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<v Speaker 1>on Monday. He added that I don't think there is

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<v Speaker 1>a deal on the table that avoids a default, So

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<v Speaker 1>what will happen. That's why we have Brian Chappatta in

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<v Speaker 1>his municipal bond reporter for Bloomberg News. You can follow

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<v Speaker 1>him on Twitter at be Chapatta. Brian, welcome to the studio,

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<v Speaker 1>Thanks for coming in, Thanks for having me. All right,

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<v Speaker 1>you got you, Christo, Paul, Oh, it's an easy it's

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<v Speaker 1>an easy called. I mean, the governor said that Puerto

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<v Speaker 1>Rico is gonna default. They are going to default. It's

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<v Speaker 1>just sort of a matter of how they're going to default.

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<v Speaker 1>The idea how they're going to default, what the fallout

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<v Speaker 1>is going to be from the default, like a well,

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<v Speaker 1>the governor has the debt moratorium that he passed earlier

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<v Speaker 1>this month at his disposal. That law allows him to

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<v Speaker 1>just say we're not paying anymore effective immediately, so that's

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<v Speaker 1>one route that they can take. There have been talks

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<v Speaker 1>between creditors and the Government Development Bank in terms of

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<v Speaker 1>a forbearance agreement or doing something in order to put

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<v Speaker 1>off payments. Um, there's been no formal announcement yet that

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<v Speaker 1>those have materialized and they've gotten agreements in place. But

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<v Speaker 1>even if they have an agreement for a forbearance with creditors,

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<v Speaker 1>the credit rating agencies still say this is a default

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<v Speaker 1>because you're not making your full payment on time. Just

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<v Speaker 1>to give detail to the numbers the creditors, seventy billion

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<v Speaker 1>dollars that's the debt that that's the full debt. Four

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<v Speaker 1>d and twenty two million is what was supp is

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<v Speaker 1>to be paid on Monday, that's right, and that's on

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<v Speaker 1>the Government Development Banks bonds. It's the fourth largest issuer

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<v Speaker 1>of bonds on the island, with a little over seven

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<v Speaker 1>billion dollars of bonds out there. So it would be

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<v Speaker 1>in terms of the size of an issuer, it will

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<v Speaker 1>be the largest Puerto Rico issuer to default so far.

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<v Speaker 1>So far they've been relatively small authorities. Is there any

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<v Speaker 1>update from the US Congress such as how Speaker Paul Ryan,

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<v Speaker 1>I mean, this has been going on for three months.

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<v Speaker 1>In fact, he asked them to put together what he

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<v Speaker 1>called a responsible solution. Have the Democrats and the Republicans

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<v Speaker 1>gotten together on this? Uh? They have a little bit

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<v Speaker 1>there in recess right now, so nothing's gonna materialize until

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<v Speaker 1>at least after May tenth, and there's a lot of

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<v Speaker 1>talk that nothing might get done until they're backed up

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<v Speaker 1>against another deadline, which would be July one. UM. There's

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<v Speaker 1>also been conversations from Bishop who uh is spearheading this

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<v Speaker 1>UH in Congress, saying that we're not that far apart um.

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<v Speaker 1>There's just some small changes that need to be worked on.

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<v Speaker 1>But it does seem like you know, you mentioned Paul Ryan,

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<v Speaker 1>he's put a lot of political capital into this to

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<v Speaker 1>making sure it gets done. So between him and Pelosi,

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<v Speaker 1>it seems like they are going to try to reach

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<v Speaker 1>some sort of solution, but it won't be enough to

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<v Speaker 1>stop this May first default will it be enough to

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<v Speaker 1>stop at the fault on July the first, because I

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<v Speaker 1>understand that Puerto Rico owes two billion dollars then, and

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<v Speaker 1>not just two billion dollars, but it's a lot of

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<v Speaker 1>payments on their general obligation bonds, which are supposed to

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<v Speaker 1>be Sacker saying to guaranteed under the Commonwealth Constitution. That's right,

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<v Speaker 1>So that's gonna be the real interesting date. Um. This

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<v Speaker 1>one has been telegraphed for a little while. I mean

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<v Speaker 1>the governor said even back in December, we're gonna miss

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<v Speaker 1>payments neither January or May. So he was sort of

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<v Speaker 1>telegraphing this for a while. But uh yeah, the general

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<v Speaker 1>obligation bonds, as you say, a Commonwealth guaranteed. Uh So,

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<v Speaker 1>missing those would definitely open up a new can of

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<v Speaker 1>worms for everyone involved. You have to open up that constitution.

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<v Speaker 1>At this same time, Puerto Rico's economy is struggling. They

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<v Speaker 1>are now dealing with an outbreak, or at least a

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<v Speaker 1>potential outbreak, I should say, of the Zeka virus, and

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<v Speaker 1>the governor has come on and said, there's no way

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<v Speaker 1>that we can pay for eliminating these stagnant pools of

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<v Speaker 1>water Uh, where the mosquitoes thrive. Yeah, I believe the

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<v Speaker 1>first confirmed death from the ZEKEA virus was announced today

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<v Speaker 1>in Puerto Rico. So that's a real sad situation. Um.

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<v Speaker 1>The tourism industry was doing well in Puerto Rico and

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<v Speaker 1>there's a possibility that this outbreak might hurt the one

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<v Speaker 1>area of the economy that was actually growing and sort

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<v Speaker 1>of doing well. So, uh, it's a pretty unfortunate situation. Yeah.

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<v Speaker 1>I mean Governor Ali hud Garcia Perdia has said for

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<v Speaker 1>a long time, we have to pay for essential services,

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<v Speaker 1>and he's really you know, made this contrast between paying

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<v Speaker 1>debt or making sure that the residents have a quality

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<v Speaker 1>of life. And the residents of a commonwealth of Puerto

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<v Speaker 1>Rico are leaving right. The actual population is shrinking that

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<v Speaker 1>I mean, that's the biggest problem. And the argument that

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<v Speaker 1>the governor and his aids are making two bondholders is, look,

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<v Speaker 1>the longer you drag this out, the less you know,

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<v Speaker 1>share of a pie you're gonna have, because the pie

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<v Speaker 1>is shrinking. There's fewer people on the island. Uh. The

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<v Speaker 1>economy is continuing to contract. Um, So yeah, you have

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<v Speaker 1>this economy that's stagnant and actually declining again. Uh. And

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<v Speaker 1>the population uh out migration is is a huge part

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<v Speaker 1>of that. So they're saying, we need to get something

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<v Speaker 1>done now so we can turn our economy around and

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<v Speaker 1>you guys can get paid the most that we can

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<v Speaker 1>afford at this time. So it's like three things. Right.

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<v Speaker 1>You've got the government that has overspent or spent, according

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<v Speaker 1>to some irresponsibly for a long time. Uh. If they

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<v Speaker 1>failed to pass a balanced budget right, which is a

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<v Speaker 1>constitutional requirement, and the g d P hasn't gone anywhere

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<v Speaker 1>since two thousand five. It's it's a real problem. And

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<v Speaker 1>that's why Congress uh sort of has to get involved.

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<v Speaker 1>The governor said today pretty much that the ball is

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<v Speaker 1>in Congress is court now. We need them to do something.

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<v Speaker 1>There is a Recovery Act in front of the U. S.

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<v Speaker 1>Supreme Court which could get passed, but the idea right

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<v Speaker 1>now is mostly eyes on Congress in Washington and see

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<v Speaker 1>see what they can come up with a fistal control

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<v Speaker 1>board that might be able to implement some more control

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<v Speaker 1>on government spending. You're gonna have a very busy weekend

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<v Speaker 1>and a busy couple of months. Brian Schappetta, Thank you

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<v Speaker 1>very much. Municipal bond reporter from Bloomberg can follow him

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<v Speaker 1>on Twitter at b Chappetta. All about Puerto Rico and

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<v Speaker 1>their debt problems. Our thanks to Reggie Basil, our engineer,

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<v Speaker 1>producer Sam Lnga. I'm Pim Fox and this is Bloomberg Radio.

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<v Speaker 1>Coming up on Bloomberg Law, discussion of the Trade Secrets Act.

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<v Speaker 1>We'll find out about this intellectual property law. It's been

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<v Speaker 1>on the book since it's coming up next on Bloomberg Radio.