Maria Made Puerto Rico’s Giant Debt Even Trickier for Hedge Funds
Children bike in a neighborhood without power or running water in San Isidro, Puerto Rico, on Oct. 5, about two weeks after Hurricane Maria swept through the area.
Photographer: Mario Tama/Getty Images
After President Trump said in an Oct. 3 television interview that Puerto Rico’s debt would have to be forgiven, the price of bonds issued by the U.S. territory fell as much as 31 percent, a massive move in the staid world of municipal credit. The president has no direct control over a question that’s being hashed out in the courts, yet the market’s panic attack underscored a simple truth: Puerto Rico’s insolvency, already a complicated and painful problem, has become thornier since Hurricane Maria slammed into the island on Sept. 20.
The Category 4 storm hit four months after the territory sought protection from its creditors in the largest U.S. municipal bankruptcy in history, with $74 billion in bond debt and an additional $49 billion in pension obligations. The need for cash now is far greater. Economic losses have been estimated at $30 billion to $95 billion after Maria wiped out the island’s power grid and left most of its 3.4 million inhabitants without running water and with shortages of food and medicine. Puerto Rico’s treasurer, Raúl Maldonado, says the government will run out of cash by the end of October; the territory has asked Congress for $6 billion to $8 billion immediately so it can meet expenses including salaries, emergency repairs, and pension payments. Meanwhile, in a series of tweets on Thursday morning, Trump wrote that “We cannot keep FEMA, the Military & the First Responders... in P.R. forever!”