Look, for example, at consumption per capita, which has fallen 30 percent in Greece but has actually continued to rise in Puerto Rico.
Representative Ramos has introduced legislation to change the Puerto Rican constitution which now requires the commonwealth to pay all debts first before any other obligations.
The default highlights the deepening pressure on the island, where officials are pushing for what may be the biggest restructuring ever in the municipal market. Investors bought up these bonds – which have been particularly popular because of their so-called triple tax exemption – with the expectation that Puerto Rico would be able to repay its debts, with interest, when the time came.
Lord Abbett via its lead portfolio manager Daniel Solender refused to comment on PFC holdings but said he longed for a reconsideration for the non-payment by Puerto Rico. Its ability to keep borrowing has receded as investors demand extra compensation for the risk.
The US House of Representatives went on recess on Monday without addressing Puerto Rico’s financial crisis while the Senate plans to adjourn on August 10.
The price of PFC debt due 2031 fell to a record low ahead of the announcement, which had been well flagged, trading at 7.5 cents on the dollar. Puerto Rico’s credit rating has dropped dramatically over the past year and the government itself could run out of cash within months, Standard & Poor’s reports.
Puerto Rico has been stressed by government debt crisis for several years.
The report explained that a huge number of American retirees have investments in “muni-bond funds” such as the Oppenheimer Rochester Fund Municipals and the Goldman Sachs High Yield Muni.
“Since Puerto Rico is not a sovereign country, and we’re not a state of the union, we’re really in limbo”, Marxuach said.
Late last month, Velazquez warned that the implications of a broader default would be felt well beyond Puerto Rico. A further implication of this is that this leaves behind an ageing population which may be more heavily dependent on the government which could further increase debt levels.
The Finance Corp. bonds represented a small share of the $597 million of interest and principal payments that were due by the end of business on Monday. The government is drowning in debt and operating with a $703 million deficit this fiscal year.
“This was a decision that reflects the serious concerns about the commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained”, Acosta said in a statement.
Here are a few key points about Puerto Rico’s financial difficulties and what they might mean for investors and the economy. Court challenges could delay any proposed restructuring. “We will vigorously defend the terms of the bond indentures”.
But the 2006 expiration of a tax incentive that drew major corporations to Puerto Rico drove away thousands of jobs.
How much investors stand to lose is a matter of speculation. General-obligation bondholders could recover as much as 80%, according to the company. And Congress could be moved to help in other ways, such as by altering bankruptcy laws to allow the territory to gain protection from creditors as it sorts out its finances.