An index that tracks the performance of Puerto Rico’s municipal debt fell to a six-year low with the commonwealth on the verge of defaulting on some of its obligations for the first time.
The Standard & Poor’s Municipal Bond Puerto Rico index closed at 151.97 Thursday, the least since the wake of the global financial crisis in July 2009.
The commonwealth’s Public Finance Corp. will likely fail to make $58 million in bond payments due Aug. 1, the first default since Puerto Rico was ceded to the U.S. following the Spanish-American War. Government officials say they can’t make the payment because the legislature didn’t appropriate the funds last month for the current fiscal year.
“The big question mark for bond holders isn’t if they will get their money back, because it’s likely that they will not,” said J.R. Rieger, global head of fixed income at S&P Dow Jones Indices. “It’s whether they can actually sell bonds and get where they’re currently priced. The depth of the market does not appear to be there.”
Year to the date, the index is down 10.8 percent while an index tracking investment-grade municipals called the S&P National AMT-Free Municipal Bond index is up 0.55 percent, he said. The market value of the bonds in the Puerto Rico index has dropped by $6.9 billion this year, he said.
Governor Alejandro Garcia Padilla said in June that Puerto Rico cannot repay its obligations and was seeking to delay debt payments for a number of years. Prices of the securities have tumbled as officials prepare to release a debt-restructuring plan by Sept. 1.
Given the “uncertainty of Puerto Rico’s future, there’s a likelihood that these bonds can go lower,” Rieger said.