WEBVTT - Maglan's Tawil on Puerto Rico: Infrastructure at Risk (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleven, Brio to Washington,

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<v Speaker 1>d C, Bloomber to Boston, Bloomberg twelve to San Francisco,

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<v Speaker 1>nine and around the globe the Bloomberg Radio plus Stapp

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<v Speaker 1>and Bloomberg dot com. This is taking Stock. Coming up

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<v Speaker 1>on taking Stock, a story about Puerto Rico. U S

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<v Speaker 1>Treasury Secretary Jacob Blue warning that Puerto Rico may need

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<v Speaker 1>a US government bailout if the Congress doesn't pass a

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<v Speaker 1>bill that helps the island restructure its debts and prevent

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<v Speaker 1>a series of cascading defaults. Will investigate right now. Let's

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<v Speaker 1>go to Catherine Calgary in the Bloomberg newsroom for a

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<v Speaker 1>Bloomberg business flash. Thank you, PIM and Bloomberg. Taking Stock

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<v Speaker 1>one six six Sector e t S. The stock market

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<v Speaker 1>is clowing back some of the owned at lost last week.

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<v Speaker 1>The benchmarks are advancing, helped by gains in banks and

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<v Speaker 1>consumer discretionary companies. Traders have lowered their expectations for higher

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<v Speaker 1>interest rates in June after data showing a manufacturing flow

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<v Speaker 1>last month. Investors are awaiting the government's monthly jobs report

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<v Speaker 1>this Friday. Drew Maddis, chief economists at UBS, and his

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<v Speaker 1>expectations for the April employment report well, probably get two hundred,

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<v Speaker 1>and we'll see the unplant rate drop, and perhaps more importantly,

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<v Speaker 1>we should see some wage gains. Uh and I think

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<v Speaker 1>that combination will be quite favorable. We check the markets

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<v Speaker 1>every fifteen minutes throughout the trading day on Bloomberg Radio.

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<v Speaker 1>Down Industrial average is up one nine points six cents

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<v Speaker 1>of a percent, trading at seventeen thousand, eight hundred eighty

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<v Speaker 1>two S and P five hundred, up fifteen points seven

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<v Speaker 1>tenths of a percent of two thousand, seventy nine. The

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<v Speaker 1>NASTAC is higher by thirty eight points eight tenths of

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<v Speaker 1>a percent, trading at forty eight thirteen West Texas. In

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<v Speaker 1>the media, crude oil down a dollar five of barrel

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<v Speaker 1>two point three percent to forty four eighty seven. Spout

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<v Speaker 1>gold is up two dollars, announced at twelve ninety two

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<v Speaker 1>fifty ten. Your Treasury downs seven thirty seconds with the

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<v Speaker 1>yield of one point eight five percent. Among today's top

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<v Speaker 1>business stories, construction spending increased in March to its highest

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<v Speaker 1>level in more than eight years. Gains in home building

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<v Speaker 1>a non residential construction offset a drop in government projects.

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<v Speaker 1>American Express is set spending more money to attract cardholders.

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<v Speaker 1>That's the word from Chief executive Ken Shinal. He said.

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<v Speaker 1>AMEX is actively seeking retail partners as it works with

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<v Speaker 1>a great sense of urgency to improve its results. Valiant

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<v Speaker 1>Pharmaceuticals International was retreating again today, down as much as

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<v Speaker 1>after billionaire Warren Buffett criticized the drug maker strategy at

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<v Speaker 1>the annual meeting of his company, Berkshire. Half Away and

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<v Speaker 1>now let's get an update of some of the other

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<v Speaker 1>stories were following on Bloomberg Radio today. Catherine, thank you

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<v Speaker 1>from the Bloomberg news Room. I'm Mark Crumpton. This news

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<v Speaker 1>update is brought to you by the Jeep Grand Cherokee,

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<v Speaker 1>It was a day off for most kids in Detroit's

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<v Speaker 1>public school system. The Teachers Union encouraged members to call

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<v Speaker 1>in sick as a protest of funding issues at the

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<v Speaker 1>financially struggling district. Kimberly Love is a teacher at Detroit's

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<v Speaker 1>Class Tech High School. We have acted in good faith

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<v Speaker 1>as educators, and now it's time for was to really

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<v Speaker 1>stand strong in solidarity to send a message to district

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<v Speaker 1>officials into the state that is enough. In March, emergency

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<v Speaker 1>funding was made available to keep the Detroit Public School

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<v Speaker 1>District operating through the end of the school year. Secretary

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<v Speaker 1>of State John Kerry wants Russia to help broker a

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<v Speaker 1>nationwide ceasefire in Syria. He spoke to reporters as he

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<v Speaker 1>arrived in Geneva to start another round of peace talks.

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<v Speaker 1>We are talking directly with the Russians even now. The

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<v Speaker 1>hope is that progress. Last week, dozens of people were

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<v Speaker 1>killed in the city of Aleppo when Syrian playing is attacked.

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<v Speaker 1>Governor Chris Christie has rejected legislation tightening requirements that new

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<v Speaker 1>Jersey employers pay workers doing the same job equally regardless

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<v Speaker 1>of gender. Governor Christie conditionally vetoed the measure today, saying

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<v Speaker 1>state law already banned gender based pay discrimination. Global News

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<v Speaker 1>twenty four hours a day, powered by our twenty four

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<v Speaker 1>hundred journalists in more than one hundred fifty news bureaus

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<v Speaker 1>around the world. From the Bloomberg Newsroom, I'm Mark Crumpton. Catherine,

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<v Speaker 1>thank you, And now let's get an update of those

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<v Speaker 1>equity benchmarks. Down. Industrial average up one hundred six points

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<v Speaker 1>at seventeen thousand, eight hundred eighty s and t f

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<v Speaker 1>I founded up fourteen points at two thousand seventy nine.

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<v Speaker 1>The nastack is up thirty eight points at thirteen. And

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<v Speaker 1>that's a Bloomberg Business flash. You're listening to Taking Stock

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<v Speaker 1>with Kathleen Hayes and Pim Fox on Bloomberg Radio. The

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<v Speaker 1>Governor of the Commonwealth of Puerto Rico, Alejandro Garcia Pattillo,

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<v Speaker 1>warned that port Rico bond investors will face a cascade

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<v Speaker 1>of the faults beginning in July unless the US Congress

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<v Speaker 1>passes legislation that would facilitate a restructuring of the commonwealth's debt. Well,

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<v Speaker 1>how likely is that. Let's find out from David Towell.

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<v Speaker 1>He is the president and the co founder of Magnun Capital. David,

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<v Speaker 1>thank you very much. For being with us. So give

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<v Speaker 1>us an update and and any prognosis you can for

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<v Speaker 1>this patient that at least today is not paying four

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<v Speaker 1>two million dollars from the Government Development Bank on interest

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<v Speaker 1>that is due. Uh. So this is just another i'd say,

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<v Speaker 1>data point on the timeline here for Puerto Rico. UM

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<v Speaker 1>it is seemingly a point in time that the Congress

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<v Speaker 1>didn't particularly think was so significant. The real um point

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<v Speaker 1>in time that is at this point absolutely critical is

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<v Speaker 1>a July one date where roughly two billion dollars of

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<v Speaker 1>total payments are due, and more importantly of those payments,

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<v Speaker 1>uh it will be potentially the first payment on general

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<v Speaker 1>obligations bonds that the Commonwealth could code to default on.

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<v Speaker 1>Why is it so critical to understand the value or

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<v Speaker 1>the difference of a general obligation bond and let's say

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<v Speaker 1>something from the Commonwealth Development Bank. Oh sure. So, as

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<v Speaker 1>with the even corporate capital structures, their varying priorities on

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<v Speaker 1>debt UM and when it comes to a Commonwealth like

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<v Speaker 1>this one, UM, some bonds or some uh debt is

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<v Speaker 1>guaranteed by certain revenue streams. In the case of general

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<v Speaker 1>obligations bonds, they're actually guaranteed by the Constitutional Puerto Rico.

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<v Speaker 1>Exactly what that means to the extent that they were

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<v Speaker 1>default on that and exactly who would be able or

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<v Speaker 1>which classes of bondholders would be entitled to which revenue

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<v Speaker 1>streams that the commonwealth produces is actually a question that

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<v Speaker 1>hasn't been an sard uh. And so therefore, you know,

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<v Speaker 1>missing a payment on those geo's in July would actually

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<v Speaker 1>bring the legal issue to a head um and make

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<v Speaker 1>you know, play out very disastrously uh for the commonwealth itself.

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<v Speaker 1>Forget about the bond holders for a second. Uh. You know,

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<v Speaker 1>the commonwealth itself is under severe or financial stress right now,

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<v Speaker 1>and the citizens of the island you know, need to

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<v Speaker 1>get uh you know necessary uh, infrastructure necessary uh and

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<v Speaker 1>basic you know services provided um, and that will further

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<v Speaker 1>come under strain, you know, to the extent of the

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<v Speaker 1>July first payment is well, just to highlight what you said,

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<v Speaker 1>Governor Padilla, he said that he's going to be focusing

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<v Speaker 1>on providing essential services rather than pay creditors. This is

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<v Speaker 1>so far the biggest to fall. I guess you get

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<v Speaker 1>attention when it's a billion dollars of a misspayment rather

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<v Speaker 1>than just FO two million it's not only that, uh,

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<v Speaker 1>you know, today's bonds um, you know don't allow the

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<v Speaker 1>creditors uh necessarily to bring the Commonwealth to a halt

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<v Speaker 1>uh the missed g O payment however, um, you know,

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<v Speaker 1>if interpreted favorably for those general obligation bondholders, could actually

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<v Speaker 1>disallow PADA from redirecting funds. Uh if the geos are

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<v Speaker 1>successful in a litigation which says under the Commonwealth Constitution

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<v Speaker 1>that they must be paid well. Frankly, general obligation bondholders

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<v Speaker 1>may have an entitlement that could be very much higher

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<v Speaker 1>than you know, the necessary infrastructure of the Commonwealth, or

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<v Speaker 1>at least, you know, anything beyond the absolutely most bare

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<v Speaker 1>bones basic needs of the Commonwealth. What about forty seven

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<v Speaker 1>cents on the dollar? This, I understand is the agreement

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<v Speaker 1>or the basis for an agreement by the government Development

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<v Speaker 1>which defaulted today and some of their hedge funds bond holders. Yeah,

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<v Speaker 1>there was a news report of regarding that regarding a

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<v Speaker 1>certain group of bondholders comprising less than of the total

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<v Speaker 1>outstanding bonds UM. And it also says that nothing is

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<v Speaker 1>definite and that they would use the next thirty days,

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<v Speaker 1>you know, to further discuss and they could obviously, you know,

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<v Speaker 1>in order to complete restructuring of those GDB bonds, they'd

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<v Speaker 1>need buy in from the remaining seventy plus percent who

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<v Speaker 1>are not currently you know, part of that tentative agreement. Um,

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<v Speaker 1>it's all well and good, but unfortunately we've we've seen

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<v Speaker 1>a lot of this in this situation until this point,

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<v Speaker 1>which is discussions and you know, tentative agreements and understandings

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<v Speaker 1>around frameworks or you know, proposals being put forward and

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<v Speaker 1>that hasn't gotten the Commonwealth anywhere. And at this time,

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<v Speaker 1>you know, they're running on borrowed time. Uh, there really

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<v Speaker 1>isn't time left to go ahead and have discussions with

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<v Speaker 1>a minority of bondholders in the hope that a consensus

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<v Speaker 1>will be reached. Obviously, there's always the possibility that a

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<v Speaker 1>broad restructuring could go ahead and be reached and you know,

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<v Speaker 1>everything will get sewn up pretty quickly. However, you know,

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<v Speaker 1>history has shown, especially in this case, which is much

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<v Speaker 1>more than a three ringed circus in wheer go ahead

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<v Speaker 1>and orchestrate, that it's quite difficult. And so the likely um,

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<v Speaker 1>you know, possibility is going to be that the Congress

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<v Speaker 1>is either going to have to come together with respect

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<v Speaker 1>to some sort of law that is going to be

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<v Speaker 1>imposed on the island, or that we're going to get

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<v Speaker 1>to a messy default here in July. Thank you very much.

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<v Speaker 1>David's how president co founder Magdalen Capital speaking about Puerto

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<v Speaker 1>Rico and it's a debt crisis. If you're listening to

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<v Speaker 1>taking Stock on Bloomberg Radio, coming up on taking Stock,

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<v Speaker 1>a new look at fiduciary rules. What do changes in

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<v Speaker 1>fiduciary rules coming from the Department of Labor mean for

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<v Speaker 1>your retirement. We've got details