While the effects of the devastation from Hurricane Maria are still being felt in Puerto Rico, the island was in financial trouble long before the storm even touched down. These woes have been exacerbated by a failing power grid and 75% of residents still without electricity. Reconstruction efforts will requiresignificant capital investment to make the necessary repairs. Some argue an entirely new grid needs to be built. However, in the meantime everyone is suffering.
Currently a Federal court case is in process to determine the fate of bond holders but it may take one or two years before an agreement can be reached.Prior to Puerto Rico, the largest case of chapter 9 municipal bankruptcy was Detroit, Michigan in 2013 which owed $18 billion. At the conclusion of the trial, creditors and investors received between 14 and 75 cents on the dollar. After the proceedings, Detroit new issue bonds were considered attractive to investors as the city was expected to make an economic recovery. It is difficult to say exactly what the outcome of the $70 billion of Puerto Rican debtwill be, but if prior rulings are to be a benchmark, then we can expect that creditors/bond holders will take a haircut.
Cheers!