On July 1st, 2016, nearly $2 billion in debt service was owed to creditors by the government of Puerto Rico. In a historic move, its government chose to default on the majority of that payment, including 100% of the total “general obligation” (GO) debt service payment due. As GO bonds are guaranteed by the “full, faith, and credit” of the government issuing the debt, they take the highest priority of all of a government’s obligations and are, therefore, considered the safest municipal investment one can make.
No American municipality has defaulted on similar debt since the Great Depression, as Puerto Rico’s case is especially concerning as it chose to pay other, lower priority debt obligations instead. In addition, the simultaneous enactment of Congress’ PROMESA bill now gives creditors no legal recourse against the Puerto Rican government. Although a default was expected, few anticipated one of this magnitude. What can creditors expect next? JVH discusses this during the live segment which aired on BBC World News.