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Puerto Rico: Caribbean Blue Commonwealth On The Brink


When your debt is trading cheaper than Detroit’s, it may be time to panic. Puerto Rico is approaching a debt crisis that makes Illinois look hale and hearty. The WSJ reports:

“It’s getting concerning,” said Dan Toboja, senior vice president of fixed-income trading at investment bank Ziegler. Puerto Rico yields “never got near a 10% even in the crisis,” said Mr. Toboja.

Other Puerto Rico bonds also traded with lower prices Monday. Altogether, roughly $40 million of Puerto Rico debt was unloaded this morning, said Alex Grant, portfolio manager for RS Investments.…

Year-to-date through Friday, the S&P Municipal Bond Puerto Rico index has fallen 17%, while the broader market, as tracked by the S&P National AMT-Free Municipal Bond Index, has lost 5.9%.

Bond prices are sinking and investors are fleeing as 14 percent unemployment, rising borrowing costs, and a weak economy are keeping down Puerto Rico debt as the “worst performing municipal market subsector tracked by S&P Dow Jones Indices.”

Last we checked, it had something to do with tens of billions of dollars in unfunded pension obligations with no indication that the bleeding would be stopped. Pensions for a quarter million government workers were less than ten percent funded and on track to go broke by next near. Roads and airports have been sold to cover debts, and public workers are opting out of Social Security.

Puerto Rico’s ability to fix this mess has implications for the municipal-bond market and, of course, for millions of people who trust their public representatives to meet the minimum requirements of financial responsibility and keep the promises they make. Unfortunately, broken promises and imperiled livelihoods have become a hallmark of blue model governance spanning decades and continents, and Puerto Rico is no exception.

Here’s to hoping that Puerto Rico can get its house in order before it becomes the Detroit of the Caribbean.

[Puerto Rico image courtesy of Shutterstock]

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