A recent American Enterprise Institute commentary said that a cramdown process will penalize those not responsible for the fiscal problems confronting Puerto Rico, weaken commonwealth incentives to adopt fiscal and governance reforms and increase future borrowing costs for the island and for the overall municipal bond market.
Puerto Rico in Distress
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Puerto Rico Governor Alejandro Garcia Padilla’s declaration of a state of emergency at the Government Development Bank to halt the erosion of the bank’s dwindling cash by allowing withdrawals only to fund health, public safety and education services is raising the risk for creditors as the island heads toward default, Bloomberg News reported today.
Puerto Rico is playing brinkmanship with creditors by threatening a default that could reverberate through financial markets and the refugee state of Florida, according to an editorial in today’s Wall Street Journal. Congress may need to save the island from itself, if only to minimize the collateral damage, according to the editorial.
Investors in Puerto Rican bonds are pushing competing agendas in Washington, D.C., over whether the struggling U.S. territory should be allowed to force debt cuts on creditors, ahead of new draft legislation expected this week from House Republicans, Reuters reported yesterday.