Bond holders stiffed again by Obama and Congress. Has such a familiar ring to it.
I don't see it that way at all. This isn't like the Chrysler deal.
Anybody who bought PR bonds in the last five years was counting on a bailout of some sort. The PR finances were too dodgy, bankruptcy was over the horizon, and an investor's hope was that PR's paper would get made good, just like Fannie and Freddie's were.
Well... oops.
There is no mechanism for States to declare bankruptcy. There is a detailed mechanism in the Bankruptcy Code for municipalities, Chapter 9. Well, Puerto Rico is a Territory, so it's neither, and nobody knew what to do.
My understanding is that this Bill is acting like an extension of Chapter 9, and no taxpayer money is being injected. So it's supervision, but not a bailout. Restructuring means the investors will get less than the initial contract, because the assets aren't there to cover them. That was the risk they took.
What form will restructuring take? It really doesn't matter, but it will probably be extension of payment times combined with lower interest rates.
As to why I don't think this is like the GM and Chrysler bailouts, it has to do with the difference between companies and government entities. GM/Chrysler had bondholders, and less senior debtors, particularly the Union Pension funds. Obama strongarmed the bondholders into giving up their priority in payments, and letting the loss they took go to the Union pension funds.
I don't see anybody getting favored in the PR situation. The bondholders are getting stiffed, but the money owed them isn't going to anyone else, either. It's a cleanup job in the finance aisle.