Maglan Capital's bankruptcy attorney-turned-investment pro David Tawil sat down with Latin Post to discuss Puerto Rico debt crisis, distress securities and taxable debt. Tawil, who owns some of Puerto Rico's debt, stated in an interview earlier in March that he believes that the country won't default, and the 2-3 billion dollars of financing will quell the financial pressure. Puerto Rico has a deal of fruitful, robust double digit returns on tax-free bases, but was poorly-run finances lead to its current economic status.

Tawil stated that Puerto Rico would not default for two reasons: identifying a fundamental perspective and a technical perspective as to why bankruptcy isn't an option for the commonwealth.

"From the fundamental perspective there's a lot for [Puerto Rican] government officials to work with. For one thing, [Maglan Capital] normally invests in companies and not municipalities ... and one of the things that we look for in a company is whether there's a real business, whether the revenue can be increased, whether expenses can be cut ... and therefore cash flow can grow," said Tawil, co-founder of Maglan Capital and debt expert. "In the case of Puerto Rico, it has all those elements. Revenue can definitely be increased either by raising tax revenue, selling off assets that may belong more sufficiently in the hands of private owners. There's a lot of low hanging fruit on the cost side ... on the liability side, in terms of pensions, in terms of the high price of low energy that can be reformed. There are a number of options for the commonwealth to go ahead and correct its balance sheet."

The municipality's tourist-driven economy, an unemployment rate that should be reducible, a government-employee that must be reduced, and adequate liquidity if funding is corrected would mean that Puerto Rico would have breathing room; both time and substance to work with.

The technical perspective suggests that the commonwealth, by law, can't access the bankruptcy code. The "automatic stay" guaranteed to those who apply for bankruptcy will not apply to Puerto Rico.

Filling for bankruptcy in the U.S. means that all proceeds against you are stayed: no one can seize your property, no one can act on judgment of another court, and all proceedings must be consolidated in a bankruptcy court, so that all things can be handled in one place, according to Tawil. If Puerto Rico was to default, the country wouldn't be granted an automatic stay.  

"Puerto Rican municipal debt is the most widely held municipal debt in this country, because it's been issued all over the 48 contiguous united states on triple tax-free bases. So, that would be a bad set of circumstances. There are no other options for them on default bases for the commonwealth," Tawil stated in a phone conversation. "Therefore, I truly believe that the federal government sees the prospect of that and will do whatever it takes to help save off those actions... those ramifications from occurring. They may not want to call it a bail out, but they're going to hand out a band aid... some sort of stop gap measure... any sort of liquidity to continue its path toward restoration."

Washington could afford to extend help to the municipality, as the United States is doing better financially than it has been doing for some time. They have the funds to ward off potential chaos for the commonwealth.

Puerto Rico is in a very serious recession, it's been there since 2006. It's most recent issues refer to immediate liquidity, which is what's rousing everyone's concern. The self-governing island has been nursing the last few dollars in its account, and determining whether they should spend. According to Tawil, the remedy to that is to put more cash in the account, which is what PR did on March 11, with its debt raise. Also, on a net basis, the municipality must make sure that it is no longer burning money, and that they're at least bringing in as much as they are spending.

The governor hopes to have a balanced budget by next year, which would be fantastic for the nation because it would mean that PR would no longer hemorrhage money, and they're not spending more than they bringing in; which would enable reform, so that the country can be "profitable."

On March 11, Puerto Rico Gov. Alejandro García Padilla signed a bill authorizing the sale of $3.5 million in tax-free general obligation bonds. The sale is considerably risky even if successful sold due to securities.

$3 billion of tax-exempt general-obligation bonds were sold to balance budgets and refinance debt; the debt sale expected to keep out individual investors who had less than $100,000 to spend. $100,000 was stipulated for purchases and trading after the securities price, transactions below that amount were completed for new debt. The U.S. territory sold securities in the largest junk deal ever for the $3.7 trillion municipal market.

"These are intended for institutional purchasers, or at least for people that can afford the risk by making it a minimum denomination of $100,000," said Martha Haines, who led the Securities and Exchange Commission's Municipal Securities office from 2001 to 2011.

Puerto Rico has borrowed each year since at least 2000 to balance its operating budget, though Governor Alejandro Garcia Padilla stated that his next spending plan will avoid the practice. According toBloomberg, the island's lawmakers reduced pension benefits, raised taxes and shrank budget gaps to mend the territory's finances.

A recent CNN article, entitled Why more Puerto Ricans are living in mainland U.S. than in Puerto Rico, illustrated that more Puerto Ricans live in the United States than on the island because of national financial instability, the cost of living, unreliable electric supply and rabid unemployment.

"It was a challenge to find a job in Puerto Rico," said Miranda, 24, who graduated from the University of Puerto Rico with a political science degree in 2012. "Unfortunately, finding work in government can be challenging, especially since it's the island's main source of employment."

Tawil and many others believe that the commonwealth will recover despites its years of financial turmoil.