utopiathecollapse | Puerto Rico’s debt crisis moved into a
more perilous phase for residents, lawmakers and bondholders Monday
after the Government Development Bank failed to repay almost $400
million. The missed principal payment, the largest so far by the island,
is widely viewed on Wall Street as foreshadowing additional defaults
this summer, when more than $2 billion in bills are due.
Together with the spread of the Zika
virus, the risk of cascading defaults is putting new urgency on
bipartisan negotiations in Washington over legislation granting the U.S.
territory new powers to restructure more than $70 billion in debt. The
Centers for Disease Control and Prevention reported last week the first
U.S. death related to the mosquito-borne Zika virus—a Puerto Rican man
in his 70s who died in late February.
In a letter to Congress, Treasury
Secretary Jacob Lew warned on Monday that a U.S. “taxpayer-funded
bailout may become the only legislative course available” if the
proposed restructuring legislation isn’t approved. The island’s debt is
held by mutual funds, hedge funds, bond insurers and individual
investors, who were attracted in part by tax benefits and high yields.
The default Monday casts serious doubt on the commonwealth’s ability to
make other future payments, which “means that other defaults are very
likely on other Puerto Rico credits,” said Paul Mansour, head of the
municipal credit research group at investment management firm Conning.
Monday’s developments are the latest
sign that a long-running economic crisis has reached an acute stage,
embroiling financial markets and Congress. Benchmark Puerto Rican bond
prices fell to near record lows Monday, with some investors paying less
than 65 cents on the dollar for general obligation bonds maturing in
2035, an unusually low price.
