Three major bond insurers are bracing for the possibility of a historic payout if Puerto Rico defaults on debt due today, the Wall Street Journal reported. Puerto Rico Gov. Alejandro García Padilla yesterday reiterated statements that the commonwealth cannot afford to make the payment and cited an April law that allows Puerto Rico to temporarily stop paying bond debt. García Padilla has long said that the island would not be able cover the July 1 payment of nearly $2 billion. That could trigger as much as hundreds of millions in payments from insurers Ambac Financial Group, National Public Finance Guarantee Corp. and Assured Guaranty Ltd. to cover principal and interest, in what would be the biggest insurer payout to date in Puerto Rico. It isn’t yet known how likely this worst-case scenario is since it is unclear just how much the insurers will have to pay. In some cases, the reserve funds set aside by Puerto Rico could cover payments. Analysts said the ultimate impact will be limited because all three insurers have money set aside for such claims and their share prices have already suffered because of Puerto Rico’s troubles. Insurers also agree to pay only the amount due on the day it is due, not to accelerate payment on the defaulted bonds. Read more. (Subscription required.)
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
