Popular in Puerto Rico Names New President

Popular in San Juan, Puerto Rico, has made a few changes to its management team.

The $36.5 billion-asset company said in a press release Monday that Ignacio Alvarez had become its president and chief operating officer, succeeding Richard Carrion, who will remain chairman and chief executive.

Alvarez, who had been Popular's chief legal officer, has been with the company for four years. He previously was a founding partner of the law firm Pietrantoni Mendez & Alvarez in San Juan.

Popular also tapped Javier Ferrer to succeed Alvarez as chief legal officer. Ferrer, who is leaving Pietrantoni Mendez & Alvarez, will join Popular later this week.

"I am confident that these changes will further strengthen our management team and allow us to operate in a more agile and efficient manner," Carrion said in the release.

Popular, which agreed in April to sell a large portion of its mainland operations, recently received regulatory approval to exit the Troubled Asset Relief Program.

by Evan Nemeroff

Popular in Puerto Rico Names New President

Puerto Rico's economic activity hits lowest since 1994

 Puerto Rico's economic activity has slumped to its lowest level in two decades, according to an index released by the commonwealth's Government Development Bank (GDB), which also showed a sharp drop in electric power generation and cement sales.

The bank's economic activity index fell 1.1 percent in August year-over-year, putting the headline index at the lowest level since 1994.

A general view of a power station of Puerto Rico Electric Power Authority, in San Juan, March 24, 2014.

Electric power generation for August fell 4.1 percent while cement sales slumped 22.4 percent. A turnaround expert was recently appointed at the island's power authority PREPA, whose debt troubles are indicative of the wider stress threatening the U.S. territory.

Read MoreHedge funds aid Puerto Rican government

However, the index showed that private employment grew for the sixth month, up 0.4 percent on an annual basis.

Ana Martinez | Reuters

Puerto Rico's economic activity hits lowest since 1994

Why Puerto Rican Men Should Sign the Independence Petition

Caribbean Business has reported that women continue to out earn men in Puerto Rico. On average, Puerto Rican women earn nearly US$23,000 a year, or about $800 more than men — a 3 percent difference. Across the United States, men still out earn women by a significant amount, although that doesn’t infer an unjust “wage gap,” one of several feminist myths that just won’t die.+

This important insight fell on deaf ears with the island’s media. It is important, because family courts in Puerto Rico still treat the woman as the better parent and in need of her former spouse’s money. With near universality, women get paid both spousal and child support in custody cases in the commonwealth, even if they earn more than their spouse.+

Spousal support (now a form of revenge) began as a way to help women when they left a troubled marriage, since traditionally women stayed home and took care of the kids — hence the idea notion women were always the better caregivers. By default, they were the primary caregivers.+

Obviously, times have changed. Women have been the majority of college graduates for two decades, the majority in professional positions for more than a decade, and now out earn men. They also spend as much time away from their children as their male counterparts while pursuing a career.+

When discussing divorce at the water cooler, women in the Puerto Rico often claim that it is the right of women to maintain their standard of living after divorce. While courts enforce that belief, no such right is afforded to men. When a man must give up half of his income and his home to his ex-wife, how can he maintain his standard of living? Men have been left virtually homeless by family courts.+

When it comes to the question of equal rights, I am a firm believer in two principles: (1) women are adults and responsible for themselves, and (2) equal rights also mean equal responsibility. To that end, in the constitution attached to my recent petition for Puerto Rico independence, I took on the issue of divorce equality (otherwise known as “men’s rights”) head on: the proposed constitution would stop all current orders of spousal support, prohibit spousal support in the future, and require joint custody and time in all future divorce cases.+

Joint time means that half of the year the child lives with the mother, and the father pays child support as a percentage of income that automatically goes up and down as his earnings rise and fall. This would occur regardless of whether he was fired, laid off, or quit a high paying job to become a school teacher.+

This is how it works before and during a marriage, and there is no reason why it shouldn’t be the same after marriage. For the other half of the year, the child stays with the father, and the mother pays the father child support at the exact same percentage.+

Disqualification or loss of parental rights can only come from a conviction of a crime against the child or other children (sexual predators), major drug addiction, or as a result of rape or incest. That is to say, the rapist has no rights to the child. Had that been in force, a rape victim would never be forced to pay child support to their rapist as occurred in Arizona.+

Women have learned a hard lesson in recent years too. Women who have married another woman’s discarded frog, who turned out to be a prince, suffer from the loss of their husband’s income. They are powerless, as their new husband must send part of their income to the ex-wife. That takes money out of the family bank account and food off the table for children of the second marriage and family.+

Yet no political party will address this issue. They won’t address it, because the other party, whichever one it is, would attack them for a “war on women.” This is also why men tired of paying spousal support, and wives of those men stuck in eternal financial slavery, have no other choice but to sign my petition for independence. No other party or group will stand up for your rights to keep the money you earn from someone who no longer wants to share your life, but is most willing to share your money.+

Upon implementation of the declaration for Puerto Rico, the new constitution would take effect and automatically repeal all previous orders of spousal support, grant fathers equal rights to their kids, and hold women equally responsible for child-support payments. If you want change, you actually have to make a change. Here is one change you can make, simply by adding your name. You can sign the English version here and the Spanish version here.

Frank Worley-Lopez

Why Puerto Rican Men Should Sign the Independence Petition

US awards Puerto Rico $5M for small businesses

SAN JUAN, Puerto Rico (AP) — The U.S. Treasury Department is allocating $5 million to help small businesses grow in Puerto Rico as the U.S. territory struggles with a recession.

Treasury officials said Wednesday that Puerto Rico's Economic Development Bank will use the money for private lending.

It is the third and final allocation under a federal program that has awarded $14.5 million to Puerto Rico.

The island of 3.67 million people is in its eighth year in recession and has a 13.5 percent unemployment rate.

US awards Puerto Rico $5M for small businesses

Research and Markets: Insurance Industry in Puerto Rico Key Trends and Opportunities to 2018

DUBLIN--(BUSINESS WIRE)--Research and Markets (http://www.researchandmarkets.com/research/zvl636/the_insurance) has announced the addition of the "The Insurance Industry in Puerto Rico, Key Trends and Opportunities to 2018" report to their offering.

The Puerto Rican insurance industry grew over the review period (2009-2013), at a compound annual growth rate (CAGR) of 2.6%. The written premium fell in 2013, primarily due to strong price competition, which led to a decrease in the income of companies. The life segment led review-period industry growth, as it registered a CAGR of 5.1%, followed by the personal accident and health segment with a CAGR of 2.9% and the non-life segment with a CAGR of 0.4%. The main driver of the sustained growth in the life segment was growth in the annuities category during 2009-2013.

Key Highlights

• The Puerto Rican insurance industry grew over the review period (2009-2013), at a compound annual growth rate (CAGR) of 2.6%.
• Puerto Rico's GDP declined continually during 2009-2011, and grew moderately in 2012 and 2013, recording a CAGR of 0.18% during the review period.
• The Puerto Rican Insurance industry is moderately concentrated with the four leading providers accounting for 56.7% of the industry, in terms of total written premiums.
• The Puerto Rican life insurance segment accounted for 9.5% of the total written premium of the industry in 2013. This indicates that the demand for life insurance products is lower in comparison to non-life and personal accident and health products.
• Increasing unemployment, shrinking population and government inefficiency continues to be challenges to economic development.

Key Topics Covered:

1 Executive Summary

2 Introduction

3 Puerto Rican Insurance Industry Overview

4 Industry Segmentation

5 Governance, Risk and Compliance

6 Competitive Landscape

7 Macroeconomic Indicators

8 Appendix

Companies Mentioned

• Triple-S
• MMM Healthcare
• Medical Card System Inc.
• Humana

For more information visit http://www.researchandmarkets.com/research/zvl636/the_insurance

Contacts

Research and Markets

Laura Wood, Senior Manager

press@researchandmarkets.com

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Sector: Insurance

Research and Markets: Insurance Industry in Puerto Rico Key Trends and Opportunities to 2018

Mientras Puerto Rico se prepara para vender $900 millones en nuevos bonos, el profesor Arturo Porzecanski enfoca su atención en el papel fundamental del Banco de Desarrollo del Gobierno en la crisis financiera de Puerto Rico

WASHINGTON, 22 de septiembre de 2014 /PRNewswire-HISPANIC PR WIRE/ -- Justo unos días después de que Puerto Ricoanunciara sus planes de emitir $900 millones en deuda adicional respaldada por ingresos, el economista internacional de la American University Arturo Porzecanski ofrecerá una teleconferencia con los medios, el miércoles 24 de septiembre, de las 12 del mediodía a la 1 pm, hora de verano del Este, para hablar sobre la próxima oferta de bonos y su nuevo informe sobre el Banco de Desarrollo del Gobierno de Puerto Rico (BDG), que destaca su papel esencial en la crisis fiscal del Estado Libre Asociado.

El informe de Porzecanski, El Banco de Desarrollo del Gobierno: en el corazón de la crisis financiera de Puerto Rico, ofrece la primera mirada crítica al papel desempeñado por el BDG, más conocido como la "alcancía" del Estado Libre Asociado. A pesar de ser con creces la mayor institución bancaria en los Estados Unidos que no es supervisada por la Reserva Federal ni por la FDIC (Corporación de Seguros de Depósitos Bancarios), el BDG ha logrado eludir el escrutinio de las agencias de calificación de crédito y de los analistas de Wall Street. "Evidentemente, pocos están ansiosos por enfrentarse al todopoderoso BDG", argumenta Porzecanski, "aun cuando es una 'caja negra' y una rama crucial del gobierno".

El doctor Porzecanski comentará hallazgos claves, entre ellos: cómo el BDG facilitó la excesiva racha de préstamos que llevó a la crisis actual; cómo el propio banco es vulnerable debido a todos los préstamos que ha otorgado a entidades estatales al borde del incumplimiento de pagos; cómo los cambios legales son necesarios para evitar que los incumplimientos de las corporaciones públicas tengan un efecto de derrame sobre las deudas de obligación general; y cómo la vulnerabilidad financiera del banco, la escasa transparencia y la falta de respaldo por una institución de préstamos de último recurso constituyen una amenaza sistémica para Puerto Rico y para los Estados Unidos continentales.

Fecha: Miércoles 24 de septiembre de 2014


Hora: 12 del mediodía, hora de verano del Este


Número telefónico: Marque: 866-952-1906   Identificación de la conferencia: Arturo 

El doctor Arturo Porzecanski es un profesor de economía internacional en la American University en Washington DC y director de su Programa de Relaciones Económicas Internacionales. Anteriormente trabajó por casi tres décadas como economista internacional principal en Wall Street. (http://www.american.edu/sis/faculty/aporzeca.cfm)

FUENTE American University

SOURCE American University

Nuevo informe documenta los riesgos financieros sistémicos que representa el BDG
Mientras Puerto Rico se prepara para vender $900 millones en nuevos bonos, el profesor Arturo Porzecanski enfoca su atención en el papel fundamental del Banco de Desarrollo del Gobierno en la crisis financiera de Puerto Rico

Major investment for Puerto Rico

SAN JUAN, Puerto Rico (AP) – Puerto Rico’s government on Thursday announced the construction of a $108 million real estate project as the island tries to emerge from a nearly decade-long economic slump with help from United States investors.

New York developer Nicholas Prouty, who recently moved to the U.S. territory, said his firm will build 252 new apartments as part of the third phase of a mixed-use complex considered the largest in Puerto Rico.

His Putnam Bridge Holding LLC also will build 50 000 square feet (4 645 square metres) of commercial space, among other things.

The original developers of the Ciudadela complex in the gritty Santurce neighbourhood of Puerto Rico’s capital declared bankruptcy several years ago as the island’s economy slumped, but the complex has since flourished in part because of generous tax credits and incentives.

Ciudadela has sold all of its 312 apartment units, and several businesses have established themselves there as well, including a grocery store and a New Hampshire-based gym franchise.

The third phase is expected to open by mid-2017.

“There are so many misconceptions that need to be addressed,” Prouty said of Puerto Rico. “The turnaround of Puerto Rico will be the result of very hard work. It will have nothing to do with destiny.”

Prouty said his company also will build a $6 million public park between Ciudadela and the Museum of Art of Puerto Rico, an area that has long served as a rundown parking lot. Non-profit groups and residents are expected to help maintain the park.

Governor Alejandro Garcia Padilla said the investment will create more than 1 000 jobs and urged others to follow Prouty’s lead.

“He symbolises the new Puerto Rican,” Garcia said. “We need more people like you, with your vision.”

The economy of the U.S. territory is entering its eighth year in recession and its government is struggling with $73 billion in public debt.

Garcia’s administration has pushed to attract more high-end investors, with New York hedge fund billionaire John Paulson making several high-profile purchases on the island, including upscale resorts and land parcels for future development.

Major investment for Puerto Rico

Moody's downgrades Puerto Rico EPA revenue bonds

(Reuters) - Moody's downgraded the Puerto Rico Electric Power Authority's (PREPA) $8.8 billion power revenue bonds to 'Caa3' from 'Caa2', citing uncertainty over the details of its expected debt restructuring plan.

"... we believe that any restructuring proposal will be influenced, to some degree, by the Commonwealth's politics, particularly given the weakened and lackluster state of the Puerto Ricoeconomy," Moody's said in a statement on Wednesday. (bit.ly/1o3w4gk)

Moody's assigned PREPA a negative outlook due to "uncertainty" and "obstacles" in executing a "complex restructuring plan" in the face of a challenging economic environment within the Commonwealth.

Moody's also said PREPA's ratings were not expected to move upward over the near-to-medium term.

 (Reporting by Abinaya Vijayaraghavan in Bangalore; Editing by Simon Jennings)

Moody's downgrades Puerto Rico EPA revenue bonds

Puerto Rico Wins With Worst Riskless Return: Muni Credit

Debt of junk-rated Puerto Rico is beating the entire $3.7 trillion municipal-bond market in 2014 and all U.S. states. Take volatility into account and the securities come in dead last.

Bonds from the struggling commonwealth have generated a 12.1 percent total return this year through Sept. 15, beating the 7.4 advance for the broader market, according to S&P Dow Jones Indices. Yet after factoring in price swings using Bloomberg’s risk-adjusted return calculator, Puerto Rico’s gain is only 1.6 percent, compared with 4.7 percent for the entire market.

The last-place showing underscores the risk-reward tradeoff of the bonds, which are tax-exempt nationwide and carry yields rivaling those on Venezuela bonds. While the swings are luring hedge funds, traditional muni investors such as AllianceBernstein Holding LP (AB)and Vanguard Group Inc. are balking as the island tries to boost its economy and repay $73 billion of debt.

“We don’t think we’re being compensated enough at these prices to be a buyer, given the risks we see,” said Guy Davidson, who helps manage $30 billion of munis at New York-based AllianceBernstein. “And that’s even true for our high-yield funds.”

Rally Temptation

A two-month rally in Puerto Rico debt hasn’t been enough to draw AllianceBernstein back to the territory. The company cut its holdings to zero after Governor Alejandro Garcia Padilla’s June proposal of a new debt-restructuring law, down from a 2 percent allocation at the start of the year, Davidson said.

“Their ability to pay this debt is largely going to be dependent on their economy starting to grow,” Davidson said.

An index that tracks Puerto Rico’s economy has contracted by 19 percent since 2006, according to the Government Development Bank, which handles the commonwealth’s debt sales. Compounding the challenge, the population has shrunk for eight straight years, to 3.6 million, as people move to the U.S. mainland, according to U.S. Census data.

Puerto Rico bonds have rebounded from record lows set in July following passage of a law allowing some agencies, including the Electric Power Authority, to restructure obligations.

Restructuring Pick

Prepa, as the utility is known, picked New York-based turnaround firm AlixPartners LLP this month to help repair its finances. It must file a debt restructuring plan by March 2.

Uninsured Prepa bonds maturing in July 2040 traded yesterday at an average price of 56.36 cents on the dollar, up from a record low 38.14 cents on July 7.

Ten-year Puerto Rico obligations yield about 8.6 percent, equivalent to a taxable 14.3 percent for investors in the top federal income bracket, Bloomberg data show. Similar-maturity dollar-denominated bonds for Venezuela, which has the world’s highest inflation rate and plunging foreign reserves, yield about 14.4 percent.

Those interest rates are attracting buyers of risky securities.

Hedge funds bought the bulk of the commonwealth’s $3.5 billion general-obligation sale in March, the municipal market’s largest speculative-grade borrowing ever. More than 60 alternative fund managers hold about $16 billion of commonwealth debt, according to an August Fitch Ratings report.

Yield Response

The price swings attract hedge funds because they’re looking for price appreciation, said David Tawil, co-founder of hedge fund Maglan Capital LP, which holds the island’s general-obligation bonds.

Puerto Rico “provides a pretty compelling investment opportunity,” said Tawil, who oversees a $75 million fund in New York. “There’s a fair amount of identifiable financial reforms that could go ahead and be carried out and yields would respond as a result.”

A group of 28 hedge funds, including Brigade Capital Management LLC, Fir Tree Partners, Monarch Alternative Capital LP and Perry Capital LLC, hold more than $4.5 billion of Puerto Rico securities, according to Russ Grote, a Washington-based spokesman who represents the coalition at Hamilton Place Strategies.

The group is “a potential source of financing to assist the commonwealth and the governor as they continue their efforts to improve the island’s financial position,” it said in a statement last month.

Fund Pullback

Puerto Rico may need to tap that financing as it plans to sell $900 million of notes in the next 30 days.

The hedge funds and alternative investors are stepping in as mutual funds, which own about 17 percent of all municipal debt, have pulled back. About 57 percent of U.S. muni mutual funds hold Puerto Rico securities as of September, down from 77 percent in October, according to Morningstar Inc.

The $9.8 billion Nuveen High Yield Municipal Bond Fund (NHMAX), the largest U.S. mutual fund focusing on lower-rated munis, hasn’t held Puerto Rico securities since June 2013, according to John Miller, co-head of fixed income in Chicago.

Outside that fund, Nuveen holds $100 million of Puerto Rico debt, or less than 1 percent of its $94 billion of muni assets, down from 1.5 percent two years ago, Miller said.

The commonwealth’s history of selling bonds to repay creditors is deterring Nuveen, even with the high yields.

“The island does have an uncanny ability to continue to convince different constituencies to enable them to extend, borrow more, extend more, borrow more,” Miller said.

Vanguard’s weighting is below benchmark levels because of recurring budget deficits and a flagging economy, said Chris Alwine, head of munis in Valley Forge, Pennsylvania. The company oversees $140 billion of state and local debt.

“We haven’t seen the economic growth,” Alwine said. “There’s still progress to be made.”

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman atsmerelman@bloomberg.net Mark Tannenbaum, Mark Schoifet

By Michelle Kaske 
Puerto Rico Wins With Worst Riskless Return: Muni Credit

Prepa inks $9.7M contract with Donahue and her turnaround team

Puerto Rico Electric Power Authority on Monday signed a nearly $10 million contract with turnaround boss Lisa J. Donahue.

Donahue, a New York-based managing director at AlixPartners and global leader of the firm’s turnaround and restructuring practice, was tapped by Prepa to serve as chief restructuring officer as part of forbearance deals with the government utility’s bondolders and bankers.

The $9.7 million pact runs through April 15 and will cover pay for Donahue and her team.

“We are pleased to have wrapped up the contract process,” Prepa Board Chairman Harry Rodríguez said. “The hiring of Donahue and her team of restructuring experts represents an investment in the future of our public corporation.”

The contract calls for Donahue and her staff of 10 restructuring experts to receive a maximum of $8.995 million for full-time work through the life of the contract on April 15. It allows for a maximum of 8 percent in spending reimbursements for total cap of $9.7 million.

Consultants from FTI Consulting will work alongside the team from AlixPartners. AlixPartners will be responsible for logging the work of its staffers, which will be reviewed and approved by Prepa on a monthly basis.

Donahue, who began work as Prepa’s CRO last week, will move quickly to increase financial transparency and stabilize cash fl ow at the troubled utility, and should wrap up the bulk of her work over the next six months, CARIBBEAN BUSINESS sources said.

Donahue has made clear in previous restructurings that she believes 180 days is enough time for any entity to restructure itself, and many sources are betting that under Donahue a restructuring plan will be in place by year’s end.

The new Prepa CRO has made increasing revenue a priority in previous assignments, but she may not have the same freedom at Prepa to raise rates given the sky-high cost of electricity and the explosive political environment surrounding the issue, according to sources.

Regardless, the newly formed Puerto Rico Energy Commission will begin a rate review in November, and eliminating subsidies and expediting payments from government entities can both help increase revenue as well.

“Her immediate priority will be to get a handle on basic finances, and determine exactly where the money comes from and exactly where it is going,” said one distressed debt investor who has worked with Donahue in the past.

“If there is a hidden set of books or other problems, she will be able to identify that very quickly,” added the investor.

With increased transparency at Prepa, by next month bondholders will know a lot more about how the business of Prepa is run. While Donahue will make clear that she works for Prepa, she will also keep bondholders better apprised of the utility’s financials than they have ever been before.

Finances are her strong suit, but Donahue has less experience with the technical challenges that are rife at Prepa’s antiquated power system, along with a combative union, heated political environment and entrenched government bureaucracy at the public corporation, said Daniel Hanson, an analyst at Height Securities.

He noted that she has also battled with Environmental Protection Agency officials and other regulators during previous restructurings, which were also marked by poor investment in capital infrastructure.

“Bondholders got who they wanted, but it may not be who they need,” Hanson said. “She will be deferential to the entrenched interests at Prepa and act more as a referee than a real reformer.”

Donahue’s ability to “wrangle the considerable competing interests in the utility into agreement over any kind of restructuring plan” will be limited, and the restructuring process will be driven by negotiations among Prepa management, union leaders and bondholders, the analyst added.

Joan Vidra, managing director at Opportunities Emerging & Frontier Markets Advisory, said she is “more optimistic than not” and believes Donahue will try to “shake things up” but take a “balanced approach” in fashioning Prepa’s turnaround plan.

“Everybody is going to have to take a hit,” Vidra said, referring to bondholders, creditors, Prepa employees and other interests. “The most important takeaway is they hired an experienced outside person who can take an objective look at the operations. Making Prepa a viable concern will be central to her agenda,” Vidra added.

Before taking office on Sept. 8, Donahue said it was too early to discuss the potential for job cuts, price hikes, privatization or write-downs of Prepa debt, but said nothing was off the table.

“We have an opportunity here to really transform Prepa for the benefit of all the people of Puerto Rico and the creditors,” Donahue told Reuters. “We will be in discussions with all our constituents in trying to put together a fair plan, a plan that makes sense for all.”

While generally optimistic that the restructuring plan was moving forward, analysts and other sources across the board said the success of the plan will depend on the authority granted Donahue and her ability to make changes that political considerations and opposition by Prepa management and unions have made impossible.

That’s especially the case, as Gov. Alejandro García Padilla has discarded privatization, rate hikes and employee firings, and said all decisions made by Donahue would have to be approved by the Prepa board.

In one sense, Donahue’s presence could serve a purpose by providing political cover to the administration if forced to take such unpopular decisions, which analysts say are necessary to save Prepa. However, her decisions will have to be executed in order for a restructuring deal to hold up and Prepa’s financial problems to be fixed.

“There is a tension here that at some point is going to be a train wreck unless the government turns around on some of these issues,” one source said.

Prepa inks $9.7M contract with Donahue and her turnaround team

UPDATE 1-Puerto Rico to issue $900 mln in notes over next 30 days -source

Puerto Rico will aim to sell $900 million in tax and revenue anticipation notes in the next 30 days to meet near-term cash needs, a source familiar with the matter said on Friday.

Tax and revenue anticipation notes are standard cash flow instruments designed to meet expenses throughout the year, but the deal is likely to attract attention given the U.S. commonwealth's financial troubles.

The sale would mark the first time Puerto Rico has sought to raise financing since it passed a controversial law in June that allows some of its public corporations to default on their debt.

Puerto Rico said in July that it would aim to complete its so-called TRANs financing by the end of the first quarter of its fiscal year on Sept. 30.

The source, who could not be named because the deal is not yet public, described the issue as "pretty standard."

Puerto Rico's bonds have rallied in recent weeks after a sell-off following the passage of the law known as the Recovery Act. General obligation bonds maturing in 2035 with an 8 percent coupon traded at 91 cents on the dollar on Friday compared to a low of 83.50 back in June.

Those bonds were part of a $3.5 billion sale in March, the last time Puerto Rico sold bonds, in a heavily oversubscribed deal that attracted a lot of interest from hedge funds.

It was unclear if the latest sale would involve a private placement or be financed via the market. The New York Times reported on Friday that JPMorgan Chase was likely to arrange financing. JPMorgan declined comment.

A group of hedge funds, including Fir Tree Partners and Davidson Kempner Capital Management, said recently they would be willing to help Puerto Rico meet its financing needs if its troubles meant it was denied market access.

Puerto Rico has over $70 billion in outstanding debt. Its power authority, known as PREPA, recently hired a restructuring officer to overhaul its business in a process that could lead to a writedown of the agency's more than $9 billion in debt. (Reporting by Edward Krudy; Editing by Chris Reese and Tom Brown)

By Edward Krudy

UPDATE 1-Puerto Rico to issue $900 mln in notes over next 30 days -source

Why Puerto Rico's Popular Could Jump 30%

Since 2007, hurricane season has never really ended for Puerto Rico. The phaseout of U.S. subsidies for big manufacturers locating there, the financial crisis, and massive public debt—recently downgraded to junk status—have ravaged its economy.

As a proxy for the island, Popular —its biggest bank with $36.7 billion in assets—has taken a wind-lashing. It has written down assets, lurched between profit and loss, and withdrawn from Southern California, Central Florida, and Illinois. Until recently, Popular was the second-biggest remaining Troubled Asset Relief Program, or TARP, borrower. The company's shares (ticker: BPOP) have fallen 7% since August 2013, while regional banks have risen 10% and the Standard & Poor's 500 has jumped 20%. CEO Richard Carrión, 61, confides that his bank even had to foreclose on loans to members of his family, which helped found the bank in 1893.

What survived, though, is a solid franchise whose shares trade at 0.7 times book value, or about nine times 2015 earnings estimates. Comparable regional banks trade at 1.3 times book and about 12 times 2015 earnings. The discount, coupled with the island's bid to win back investment, has attracted distressed-investment specialist John Paulson, who has bought an 8.6% stake in Popular.

Enlarge Image

CEO Richard Carrión has led a painful turnaround as the bank backpedaled from a U.S. expansion. Photo: Peter Murphy for Barron's

In a pricey banking market, Popular is "the last bastion of value investing," says Brett Rabatin, a bullish Sterne Agee analyst who has a $41 price target on the stock; that's 31% above last week's $31.30 level. "There's still a lot of skepticism embedded in the price," he says.

WITH SOME REASON. Puerto Rico has a 13% jobless rate, a high incidence of crime, and deteriorating public services. As a result, middle-income residents have been decamping, mostly for the States. Several of the U.S. territory's utilities, borrowing in the tax-exempt market, have been downgraded to less-than-investment grade in recent weeks and provide substandard services. The Puerto Rico Electric Power Authority, for instance, charges customers as much as 28 cents a kilowatt hour for power, about 2.5 times the typical U.S. rate. Barron's highlighted Puerto Rico's debt problems in a cover story last year ("Troubling Winds," Aug. 26).

But CEO Carrión reminds investors that the bank and the island aren't the same. "People tend to simplify things. Puerto Rico has been getting the wrong kind of ink. People are waiting to see if the economic crisis is going to bleed into our credit and performance," he says. But, he adds, "In so doing, they may miss opportunity."

To solidify Popular's balance sheet, Carrión has sold off the loss-making branch networks in the U.S., retreating to New York and Miami; moved more of its back-office operations to Puerto Rico; sold a clearing unit; and cut costs at its ill-starred purchase of E-Loan, an online lender. The result? Popular now has a 13.8% Tier 1 equity capital ratio, well above U.S. Bancorp's (USB) 9.6%.

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Popular today is dominated by the island's Banco Popular de Puerto Rico, which represents about 60% of recent profit and nearly 75% of assets (the rest is U.S. operations). Popular offers typical retail-banking services, including mortgage origination and insurance as well as commercial lending, investment banking, and auto leasing. Wall Street estimates the bank will earn $2.84 a share in 2014, up from $2.55 in 2013, and then $3.39 in 2015.

LARGELY UNNOTICED AMONG the giant U.S. bank regulatory settlements, Popular this summer repaid its $935 million in TARP debt. That the bank did so without issuing new equity impressed Brian Klock, an analyst with Keefe, Bruyette & Woods. Popular repaid about half of the loan with cash on hand and the rest with proceeds from a $450 million, B-plus rated five-year debt offering. Convinced of the bank's profit-making ability, Klock raised his earnings estimates for 2014 to $3 a share from $2.87, and for 2015 to $3.55 a share from $3.05. The repayment could boost 2015 return on assets to 1.01%.

"Investors could be underestimating the bank's core earnings power," says Klock, who has a Buy rating on the stock. "Fear that the government fiscal situation will produce big losses is a stretch."

With the TARP money repaid, Popular is finally in a position to reinstitute a share-repurchase plan or dividend, subject to regulatory approval. It pulled its 80 cents-a-share annual dividend (3.2% effective yield) in 2009. Comparable regional banks offer a roughly 2% yield, though Popular isn't likely to give that kind of payout right away.

Popular's bulls agree that its No. 1 market position is a big competitive advantage. The bank holds 36% of all loans and 39% of all deposits on the island. Its size and clout "enable it to pick and choose among the better lending opportunities on the island," says Mark Palmer, an analyst at BGIT, who also has a $41 target.

The Bottom Line

Popular shares have trailed both the stock market and its peers in the past year. The stock could climb 30%, to more than $40, as Puerto Rico recovers.

"Our balance sheet consists of carefully underwritten businesses that are closely monitored with specific sources of repayment," says CEO Carrión. "You have to get into the weeds to really understand that a one-on-one loan is quite different from a mere piece of paper." Nonperformers are 3.3% of loans and are well reserved for.

Amid all of the talk about corporate taxes in Washington, Puerto Rico gains appeal. Despite losing some tax breaks, the island retains a strong base in manufacturing, and aims to attract more by cutting taxes on exported services to an ultralow 4%. In particular, it's seeking back-office work from financial services firms. Deutsche Lufthansa's (LHA.Germany) maintenance unit is one newcomer; it plans to open a facility next year using an abandoned U.S. airfield.

As Carrión assesses the island's status, "There are already signs we have touched bottom. The buyers are moving in. More than anything, we need new growth and fresh capital investment." 

E-mail: editors@barrons.com

By Jack Willoughby    

Why Puerto Rico's Popular Could Jump 30%

To Reclaim Prosperity, Puerto Rico Should Adapt Ireland’s Model for Modernization

Today, NDN has released a new paper from Dr. Rob Shapiro: “To Reclaim Prosperity, Puerto Rico Should Adapt Ireland’s Model for Modernization And Focus on Attracting Investors from Around the World.”  You will be able to find the full paper below in pdf form. 

In this thoughtful prescription for Puerto Rico’s future, Dr. Shapiro writes:

“Puerto Rico’s current and long-standing program for economic growth has clearly failed, and the Commonwealth government and the people it serves need a new approach.  For nearly two generations, the Island’s economic policy has focused on preserving U.S. corporate tax preferences for American firms that locate operations in the Commonwealth.  The record shows that this singular focus has produced economic decline.  

Instead, Puerto Rico should adopt a version of Ireland’s economic approach, which used targeted public investments, tax preferences, and the country’s low-cost access to markets in the European Union (E.U.), in order attract large scale foreign direct investments (FDI).  In the process, Ireland transformed itself over one generation from the poorest country in the E.U. to one of its most prosperous members.”

“NDN is proud to release this new paper which we hope will become an important part of the debate about Puerto Rico’s future,” said Simon Rosenberg, President of NDN, a DC based think tank. 

“The commonwealth's economic course is unsustainable.  Dr. Shapiro offers a powerful vision for how Puerto Rico can regain control over its own destiny, and stride confidently into the far more competitive world of the 21st century.” 

Started in 2005, NDN and its sister educational arm, the New Policy Institute, are well established thought leaders on US-Latin American Relations, the US-Mexico partnership and Latino issues in domestic US politics.   Dr. Rob Shapiro, former Under Secretary of Commerce for Economic Affairs, Chairs NDN’s Globalization Initiative. 

 by Simon Rosenberg

To Reclaim Prosperity, Puerto Rico Should Adapt Ireland’s Model for Modernization

Puerto Rico August tax revenue misses target -Treasury

(Reuters) - Puerto Rico's tax revenues totaled $440.6 million in August, below a government forecast of $468.0 million as some important tax categories missed estimates, according to data from the Puerto Rico's Treasury on Thursday.

"Treasury will continue monitoring revenue collections closely and will take the necessary fiscal measures as needed," Treasury Secretary Melba Acosta Febo said in a statement. 

(Reporting by Edward Krudy; Editing by Bernard Orr)

Puerto Rico August tax revenue misses target -Treasury

The Puerto Rico Economy Nears The Abyss

Summary

• Puerto Rico's economy continues to tank.
• Economic activity has fallen for the 19th straight month to a twenty-year low.
• UBS investor bond holders are sure to suffer.

Like a mad leviathan from the deep that chokes and drowns its prey, the tide of bad news keeps coming for Puerto Rico and threatens to drag the island commonwealth and its bondholders under.

Indeed, Puerto Rico faces a massive fight on multiple fronts. It continues to deal with a struggling economy, a flight of citizens to the United States and huge budget deficits.

These events pile the misery onto Puerto Rico residents who were sold Puerto Rico bonds and closed end funds by UBS brokers and other financial advisors. Puerto Rico residents' portfolios have tanked as their bonds and bond funds have been downgraded to junk status. Many investment fraud attorneys have filed claims to seek recovery of those losses, and securities regulators are furiously attempting to unearth the truth about the sale of these bonds and bond funds.

Puerto Rico's economy is staggering under the weight of these events. According to Reuters, economic activity in Puerto Rico fell in July for a nineteenth straight month to a twenty-year low. The report cited a government economic activity index published last week.

The Government Development Bank's Economic Activity Index (EAI) fell 0.7% year-on-year in July. That brought the Index level back to 125.1, the lowest since 1994.

Meanwhile, Puerto Rico looks like it is preparing to throw its bondholders overboard.

The Puerto Rico Electric Power Authority (PREPA), has hired AlixPartners, a prominent restructuring outfit and consultant, to try to restructure its debt. PREPA has been unable to pay its $670 million in loans to a group of Wall Street lenders, according to a recent report in the New York Times.

Restructuring experts, including the law firm of Cleary Gottlieb and advisory boutique Millstein & Company, have been spending time on the Island working with the government and various Puerto Rican entities.

A restructuring deal for PREPA does not necessarily improve the burden of day to day life for Puerto Rico's people, according to the report, by Michael J. De La Merced and Michael Corkery.

Jake Zamansky, Zamansky LLC

The Puerto Rico Economy Nears The Abyss | Seeking Alpha

Puerto Rico power authority PREPA bonds trade higher

(Reuters) - Bonds in Puerto Rico's power authority PREPA rose on Monday to trade at their highest level in over three months following the announcement on Thursday that the troubled utility has hired a top restructuring expert to work on overhauling its business.

PREPA bonds carrying a coupon of 5 percent and maturing in 2028 traded at an average price of 57.250 cents on the dollar and a yield of 11.720 percent on Monday compared to 51.458 cents and a yield of 13.018 when the bonds last traded on Thursday.

The price was the highest since May 28 when the bonds traded with an average price of 57.850 and a yield of 11.494 percent, according to Thomson Reuters data.

PREPA selected Lisa Donahue from advisory firm AlixPartners to lead a restructuring at the utility, which has over $9 billion in total debt. Donahue was hired under a forbearance agreement with lenders and other creditors.

"We have an opportunity here to really transform PREPA for the benefit of all the people of Puerto Rico and the creditors," Donahue told Reuters on Friday in her first interview since being appointed PREPA's chief restructuring officer. (Reporting by Edward Krudy; Editing by Bernard Orr)

Puerto Rico power authority PREPA bonds trade higher

Puerto Rico debt legislation to hit growth prospects

Puerto Rico's Public Corporation Debt Enforcement and Recovery Act will likely damage the commonwealth's prospects of an economic recovery, said ratings agency Moody's Investors Service in a report.

In July, Moody's downgraded Puerto Rico to 'B2' from' Ba2', following the commonwealth's enactment of the law in June, which enables public corporations to defer or reduce payments on outstanding bonds.

The legislation will limit Puerto Rico's ability to access financing in the near future, increase its borrowing costs and making it difficult for the island to fund capital projects, which will damage its growth prospects, said the agency.

A deeper recession and higher unemployment will also weaken the ability of businesses and households to meet debt obligations, which will impact the asset quality of local banks, leading to higher provisions and capital erosion.

The legislation itself also increases banks' asset quality risk, given local lenders' exposure to public and municipal entities.

While capital is currently a strength for Puerto Rican banks, reliance on wholesale funding is a structural weakness of the commonwealth's banking system, said Moody's.

"Puerto Rico doesn't have adequate deposit capacity to fund its banking system, which has therefore turned to brokered deposits, albeit to a lesser degree in recent years."

The decline of the Puerto Rican economy can be partially traced to 2006, when the island began phasing out preferential tax treatment for US companies.

While the US economy remained solid in 2006-08, Puerto Rico entered recession and lost many manufacturing jobs in high-paid sectors, such as pharmaceuticals.

And while the US economy has been recovering since 2010, Puerto Rico's has remained stagnant, with a combination of a declining population, very low wealth levels and a decline in major industry impacting growth.

By Kieran Lonergan

Puerto Rico debt legislation to hit growth prospects