Puerto Rico's Crisis: Desperate Times Call For Desperate Measures

Summary

Puerto Rico will likely default on a $354 million debt payment.

The U.S. Treasury may collect Puerto Rico taxes in a "lock box."

Puerto Rico is in "desperation" mode.

The sky is falling in Puerto Rico. For the first time, the Government Development Bank debt, purportedly "guaranteed" by the government, is in danger of default. It's likely the GDB's $354 million debt payment due on December 1 will be missed - a first even for a shaky borrower like Puerto Rico. Officials have said the government could run out of cash in November unless it can get a short-term loan or renegotiate its debts.

And on Thursday, Puerto Rico's $72 billion debt crisis took a startling new turn.

The Wall Street Journal reported that Puerto Rico and U.S. officials are discussing the issuance of a "superbond" administered by the U.S. Treasury Department that would help restructure Puerto Rico's debt.

"Under the plan, the Treasury would administer an account holding at least some of the island's tax collections," according to the WSJ report. "Funds in the account would be used to pay holders of the superbond, which would be issued to existing Puerto Rico bondholders in exchange for outstanding debt at a negotiated ratio. Investors would receive less debt but would have higher expectations for getting repaid."

Jake Zamansky

Puerto Rico's Crisis: Desperate Times Call For Desperate Measures