KeNo's Housing and Economic Portal: Friday November 6 Housing and Economic stories

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Puerto Rico Said Struggling to Reach Deal With Hedge Funds - (www.bloomberg.com) Puerto Rico officials and a group of hedge funds are deadlocked on an agreement to restructure the island’s debt and inject new capital into its development bank, hours before a confidentiality pact expires, according to two people with knowledge of the matter. After the non-disclosure agreement ends Wednesday morning, the two sides would exit talks, said the people, who asked not to be named because the information isn’t public. The conversations are the first Puerto Rico officials have held with holders of the government’s debt since the territory’s leadership released a restructuring and economic plan that would seek to cut government services and force losses on most creditors. The hedge funds, which own debt issued by the Puerto Rico Government Development Bank, entered negotiations three weeks ago to arrange an exchange of some of the agency’s roughly $5.1 billion of debt, people with knowledge of the matter said last month.

[Bloomberg] Sinosteel's Not-Default and More Moral Hazard: Katrina Nicholas – (www.bloomberg.com) Sinosteel Co. looks set to avoid recording the first default by a Chinese steel company and a central state-owned enterprise. Good news for bondholders; not so good for the development of the nation’s debt market. The company provided additional collateral for its 2017 yuan notes and extended their redemption by one month until mid-November. Sinosteel is said to be in discussions with the National Development and Reform Commission, which also is planning to meet with investors in the company’s securities. The likely rescue of another company opens a familiar can of worms for China’s markets. Figuring out credit risk will remain an opaque process of assessing a firm’s political connections and social importance. Without defaults, the true risk of corporate failure remains obscured, and that can only encourage moral hazard. Capitalism without bankruptcy is like Christianity without hell, as the saying goes: Why bother watching debt levels when the government stands ready to pick up the pieces?

How the One Percent Get a One Percent Interest Rate - (www.bloomberg.com) Being part of the 1 percent just took on new meaning. That’s about the rate at which billionaire Steve Wynn is borrowing against his extensive art collection as wealth management firms push to win business from the world’s ultra-rich. The casino mogul pledged 59 works of art as collateral for a loan from Bank of America Corp., one of several steps he recently took to raise cash, according to interviews and regulatory filings. The 73-year-old founder of Wynn Resorts Ltd. said the arrangements permit him to borrow at less than 1 percent. “This is a great time to be poised with ample cash,” Wynn said in an e-mail through his spokesman. The favorable terms highlight the increasing competition in the market for art lending, where wealth managers are seeking to win and retain top clients with lower interest rates than ever. Traditionally dominated by auction houses and banks such as Citigroup Inc., JPMorgan Chase & Co. and Bank of America, record prices for art and a surge in wealth among the world’s richest are attracting new players, including one venture backed by private equity firm Carlyle Group LP and Swiss wealth manager Pictet Group.

Jim Chanos Nails the Link Between Debt and Energy - (www.bloomberg.com) At the heart of Chanos's thesis is the contention that years of low interest rates, cheap financing, over-eager investors and ambitious managers have helped propel the boom in U.S. shale and imbue it with near unstoppable momentum; U.S. oil production is expected to grow 6 percent in 2015 despite a stunning 59 percent drop in the U.S. rig count over the past year. The extent of the capital market's support for energy over the past half-decade is laid bare in the financial figures. According to Chanos, cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010, meaning the firms have consistently outspent their income. That trend is present even at the larger "big oil" firms such as Exxon, Chevron and Royal Dutch Shell, Chanos claims, with cash flow following distributions to shareholders also firmly in the red.

Mideast Oil Exporters Face $1 Trillion Budget Pinch, IMF Official Says - (online.wsj.com) Middle Eastern oil exporters face a combined $1 trillion budget shortfall in the next five years if crude prices stay at present lows and economic reforms aren't introduced more rapidly, an International Monetary Fund official said. Countries such as Saudi Arabia and Kuwait are coping with theimpact of falling oil prices by drawing down some of the vast reserves they built up in recent years thanks to high oil prices. They’ve also started borrowing more, though spending on large infrastructure projects and social handouts hasn’t significantly come down yet. Masood Ahmed, director of the IMF’s Middle East and Central Asia Department, says these oil-rich countries for now have the capacity to borrow more from the markets but time is running out because most countries in the region will have burned through their reserves within five years.

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