Standard & Poor's on Friday maintained its “CC” rating on $47.5 billion of tax-backed Puerto Rican bonds, reflecting a negative outlook after the U.S. Treasury Department pushed Congress to pass laws to address the island's economic crisis, Reuters reported on Friday. The U.S. commonwealth, facing $72 billion in debt, has said that it could run out of cash by next June, and some analysts believe it will default as early as Dec. 1, when it owes a $355 million payment. Treasury's proposal, the Obama administration's first public directive on how to address the U.S. territory's problems, would allow the Puerto Rican government to file for bankruptcy, improve its Medicaid and Medicare funding levels, and extend earned income and child tax credits to the island. In a Friday statement, S&P said its rating "reflects our view that a default is highly likely, with or without enactment of this proposal." Read more.
A messy Puerto Rico default is in nobody’s interest, which is why Congress ought to move swiftly to provide the American territory with a way to restructure its huge debt and revive its economy, according to a New York Times editorial yesterday. The Obama administration last week offered the outline of a rescue plan to help the island and the 3.5 million American citizens who live there. The plan would impose new oversight on the island’s finances and expand access to government programs like Medicaid and the earned-income tax credit. Crucially, it asks Congress to change the law so that Puerto Rico’s territorial government and its municipalities can seek bankruptcy protection. What investors must realize is that an orderly restructuring is a far better alternative than the long and complex legal battles that would inevitably follow a sudden default, according to the editorial. And if, in addition to reworking the bankruptcy law, Congress also created an oversight board, as the Obama administration recommends, investors could have some confidence that Puerto Rico’s politicians would make needed policy changes. Read the full editorial.
For more news and analysis on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage.
