Obama quickly signs Puerto Rico financial rescue bill

Puerto Rico has only $200 million in cash in the operating account from which it was supposed to pay the general obligation bond debt, according to the Government Development Bank, which oversees the island’s debt transactions and is operating under a state of emergency that permits withdrawals only for essential public services.

Obama said after the vote that he looked forward to signing the bill into law and commended lawmakers for passing it. “He is also uneasy with the control board created by the bill being able to accept gifts”.

About $1 billion of that is backed by the island’s constitution as GO debt, or debt that carries a GO guarantee, a category of debt that has not been defaulted upon by any USA state in decades.

Leaders of both parties urged their colleagues to support the legislation, saying that Congress needs to step in and prevent financial and humanitarian chaos on the island.

PROMESA, a rare bi-partisan compromise, passed the Senate on Wednesday by a vote of 68 to 30.

General obligation bonds are the creme de la creme of the bond world. “It not only will have to remediate Puerto Rico’s finances, it’s going to have to do so with Puerto Rico probably working against it from the shadows”. The S&P Puerto Rico bond index has risen for the past 23 days, the longest winning streak since 2012, to the highest since Garcia Padilla’s announcement a year ago that the government’s obligations were too much to pay.

“In my view, we need austerity not for the people of Puerto Rico, but for the billionaire Wall Street hedge fund managers who have exacerbated the crisis on the island”, Sanders said on the Senate floor. Puerto Rico’s benchmark 2035 General Responsibility bond rose 1 full point in rate ahead of the last vote, to trade at 66.75 points, pressing the yield down to 12.663 percent.

It remains to be seen whether Puerto Rico will pay part of the GO debt or any of the non-GO debt.

PREPA, which had been on the brink of collapse under $8.3 billion in debt, a year ago reached an exchange deal with most of its creditors, which is being finalized.

In return, Puerto Rico is being forced to accept strict oversight by a control board that will have significant power over its day-to-day affairs.

PROMESA, among other things, addresses the applicability to Puerto Rico of the U.S. Department of Labor’s Final Rule updating regulations under the Fair Labor Standards Act (“FLSA”) governing overtime exemptions for executive, administrative, and professional employees (commonly known as the “white collar exemptions” or “EAP exemptions”).

The default comes one year after Garcia Padilla said the island was unable to repay all that it borrowed to keep the government afloat as the economy remains mired in a recession.

While the market had anticipated Friday’s default, it affects the credibility of a territory grappling with $70 billion in public debt, economist Jose Villamil warned. It also blocks potential litigation between the island and its creditors.