Puerto Rico: Just Another Deadline or the Big One?
Midnight came and went with no news of a debt deal in Puerto Rico, and no extension of a stay on creditor enforcement under PROMESA. It sure looks like we are careening into an actual sovereign-ish bankruptcy-ish filing under Title III of the law.
The price movements just might reflect collective wisdom that a statutory restructuring is inevitable, and we might as well get on with it. Better yet, maybe the courts will finally sort out the priority thing. My hunch is that it would be better for the Congress or the courts to address priorities head on than for Puerto Rico to exempt some subset of its bonds from haircuts ad hoc, in hope of creating a privileged contract it could then use to access the capital markets. Sovereigns tried to anoint the Brady Bonds and later the eurobonds as a privileged class in the 1990s, with the result that all the creditors piled into the bonds, and the bonds became too big to spare the next time.