February 2014: An Inconvenient Truth

Analysis of Puerto Rico’s public debt affair

On February 28, 2014, the PR Senate approved a bill enabling the island to issue $3.5 billion in General Obligation bonds of the Commonwealth of PR and on March 3, 2014, the House of Representatives finally stamped its approval to this bill, which Governor Alejandro García Padilla has already signed into law 34-2014. Rating agencies gave it a preliminary below investment grade. The proceeds of this new bond issue will be used to pay and/or refinance Commonwealth debt in the estimated amount of $2.9 billion. Meanwhile, the island economy continues mired in deep recession. How did PR get to this point? This issue of Pulse highlights how the $71 billion public debt affair of Puerto Rico evolved; why were bonds downgraded to below investment grade; what does this mean for the island; how will this impact PR bonds; is it likely that PR could default on its debt; will the Federal Government assist; how does PR regain investment grade rating and how soon? We will look at some of these questions.