What choices do banks have when the going gets tough? Puerto Rico, a self-governing US territory, is burdened with a stagnant economy, low levels of tax collection and very high levels of debt. Indeed, only two US states – New York and California – have bigger debts, with Puerto Rico’s now standing at $72bn. Making matters worse, Puerto Rican bonds are widely held by US mutual funds and individual investors, so any default could be a real shock to the US municipal/sub-sovereign debt market.
And because of the territory’s unusual status as neither a sovereign country nor a state, its municipal entities also cannot invoke US bankruptcy laws and protections.
