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Alpha Diallo

Puerto Rico Debt Downgraded to Junk by S&P


Things are getting even tougher in Puerto Rico! Yesterday, the rating agency Standard & Poor’s delivered a massive blow to the already struggling Commonwealth by downgrading its debt to "junk" status. The debt rating was lowered to BB+ from BBB- as a result of the government’s inability to raise funds through its Development Bank. According to S&P, the downgrade could potentially cause initial cash calls from creditors in the neighborhood of $940 million. Confidence is extremely low in the municipal bond market of Puerto Rico. Liquidity is likely to dry up as borrowing rates expand upwardly. Going forward, S&P has placed a "negative watch" rating on the Commonwealth’s debt.  (Image source: barrons.com)

  • Happy Blogger
    How will this impact the US markets?
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  • Alpha Diallo
    A lot of institutional investors in the U.S. hold municipal bonds from Puerto Rico because of the tax savings. In addition, a default would cause a huge migration of Puerto Ricans to the U.S. mainland. The migration would drain social services and increase the unemployment rate. Remember Puerto Ricans are U.S. citizens.
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