Puerto Rico Part Two …. Debt Levels … Darn S&P Steals Our Thunder

You just cannot make this up … Right after market close yesterday (2-4-14) Standard and Poors did all they could do to steal our thunder on this subject and downgraded Puerto Rico’s debt, EXACTLY where we were headed in our series, great minds.

Not to worry, we will trudge ahead as the sizzle is in Part Three which comes next week.

Puerto Rico’s Debt Situation

As noted in last weeks post, Puerto Rico is beautiful and a wonderful place to visit, with tourism making up a lot of their GDP, however their growth is lacking and they have heavy debt load.

Here are a few interesting stats from a recent Forbes article:

• Puerto Rico has public debt of $53 billion  or $17,500 per person ($70 billion with government debt)
• The State of Texas for comparison purposes has $40 billion or $1,577 per person
• 75% of all Muni Bond funds own some Puerto Rico Debt ($3.7 Trillion total muni debt) VERY IMPORTANT !!
• Puerto Rico is the THIRD largest issuer of public debt behind only California and New York

Ok, you get the point, a smaller country, with a sinking GDP and HUGE debt service … Something has to give!

How likely is a Puerto Rico default?

As said earlier, Standard and Poor’s stole our thunder by downgrading Puerto Rico’s debt less than 24 hours ago.

… S&P, which had placed Puerto Rico’s rating on notice for a downgrade last month, said it now rates the Caribbean commonwealth at “BB ,” one level below investment grade. Previously it had rated it “BBB-.   … S&P said it worried that Puerto Rico, a Caribbean island populated by 3.62 million people, has limited ability to sell more debt in the U.S.’s $3.7 trillion municipal bond market and faced possible cash shortages.

Next week, possible opportunity from the masses  … No more beating up on Beautiful Puerto Rico!

Have a Great Day!

John Kvale CFA, CFP