Wednesday, January 22, 2014

Puerto Rico bonds will yield 10% ..what will Providence and West Warwick have to pay for their bailo

     Could West Warwick and Providence be bailed out? Could they issue Pension Obligation bonds? Don't count on it. Once these Puerto Rico municipal bonds hit the market who is going to want Providence or West Warwick paper?
       Recent reports describe an effort by Morgan Stanley .Puerto Rico's 3.7 million people have endured a shrinking economy since the 2004 and  may again be tumbling back into recession, partly from a pensions overhaul that is kicking in. It passed reforms earlier this year to try to bring down its $37.3 billion of unfunded pension liabilities, but the territory's $35 billion of pension debt will remain for years.

       Puerto Rico comparisons  to West Warwick,RI  and Providence,RI   and Central Falls, RI  just prior to Chapter 9 filing appear below:

                      Unfunded Liabilities           Population              Per capita pension debt      Debt Rating

 Puerto Rico        $35 billion                          3,700.000                     $   9459                          Baa3
 Providence        $1.35 billion                         174,800                     $   7723                           Baa1

W. Warwick       $125.9 million                         29,191                     $   4314                           Baa2

Central Falls        $ 46.5 million                          19,369                     $   2403                            B3

       Central Falls has just emerged from bankruptcy / receivership. Unions initially rejected proposals and ended up receiving roughly 60 cents on the dollar. I expect retirees  will do better in West Warwick's receivership because there is plenty of room and precedent in other Rhode Island troubled cities like Woonsocket and Providence that allow for a 50% increase in individual and commercial property tax rates. This is very likely. current revenues from property taxes in West Warwick are approximately $54 million dollars. This doesn't even cover the cost of education in town. A 50% supplemental tax increase will generate roughly $27 million dollars and if placed in its entirety in Pension Retirement  plan assets would increase assets by 100% but would still be only 44% funded and in critical status. the rest of what is necessary will come in reduced benefits. $ 50 million in cuts  from the 650 employees receiving benefits will place the plan 67% funded , still at risk but out of "critical status".
       I have heard people say things like we're not as bad as Woonsocket or Central Falls or Providence. That may or may not be true but Rhode Island cities compare horribly across the nation and even in New England. I will attempt to explain why over the next twelve months. Each town is different even though persistent under-funding is by far the biggest factor. The critical issue now is these town will go under without immediate reform.You have all been warned.


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