When Puerto Rico struck a deal more than a year ago to cut the government electric company’s $9 billion debt, one group was spared the hit: bond insurers, whose guarantees the island needed to win back the faith of investors, Bloomberg News reported yesterday. That agreement and the precedent it set are now at risk as Governor Ricardo Rossello threatens to use the bankruptcy-like powers the U.S. has since given the territory to seek additional concessions from MBIA Inc. and Assured Guaranty Ltd. That’s triggered a decline in bond insurers’ shares over speculation about the scale of the losses they face as Puerto Rico moves toward the bigger effort to slash its entire $70 billion debt. “For an outsider coming in, like the governor, it probably doesn’t seem to him like the people of Puerto Rico got the best deal here,” said Chas Tyson, an analyst with Keefe, Bruyette & Woods. The push to reopen the Puerto Rico Electric Power Authority’s December 2015 agreement — the only one that the island has reached — marks an opening salvo in Rossello’s effort to pull the government out of a crisis that’s promising to impose deep losses on bondholders, who snapped up the territory’s high-yielding debt for years even as the economy contracted. Puerto Rico has already defaulted on a major swath of its debt and the fiscal recovery plan approved this month by U.S. financial overseers would cover less than a quarter of what it owes between 2018 and 2026, assuming the government can accomplish its goals of cutting spending and raising revenue.
