The United States may have a problem closer to home than Greece. Puerto Rico just made debt payments that were previously under question. Many investors worry about the fallout’s impact on a large number of municipal bond funds — and that can make those tax-free yields suddenly become costly.
Credit Suisse issued an outlook on Puerto Rico on Monday. The firm said that Puerto Rico’s economic and financial woes have been brewing for a decade. While the financial markets have looked the other way for years, the U.S. territory’s chronic problems have taken on a renewed sense of urgency.
Credit Suisse said:
This past weekend, Governor Alejandro Garcia Padilla made the remarkable assertion that Puerto Rico’s roughly $72 billion “debt is not payable.” And a June 29 report conducted by current and former IMF staffers confirms that “a crisis looms.” Puerto Rico now finds itself cut off from normal market financing.
The commonwealth is also said to be trying to delay payments on this debt as part of a larger effort to revitalize its economy. Puerto Rican officials intend to develop a debt restructuring plan by August 30. The challenge: there is no clear process in place for how Puerto Rico can restructure its debt.
Credit Suisse said the same thing that has been widely reported: the commonwealth is not allowed under U.S. law to file for municipal bankruptcy protection. However, the firm said, efforts are now underway to change this. One new bill in the works, announced on June 30, aims to allow Puerto Rico to declare Chapter 9 bankruptcy. The firm opined:
Although the bill has Democratic support in Congress, the announcement was widely opposed by Republicans, hurting prospects for quick passage.
Puerto Rico is a lot closer to home than Greece. 24/7 Wall St. recently gave a comparable view of Puerto Rico and Greece.
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