By Insurer’s Calculation, Puerto Rico Debt Burden Is Lowest

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The reports of Puerto Rico’s unpayable debt load have been greatly exaggerated, according to the MBIA Inc. unit National Public Finance Guarantee Corp.

The cash-strapped island, which defaulted on bonds for the first time this month, has a smaller burden than all other U.S. states after adjusting for its territory status, according to a report dated Monday by the bond insurer. Excluding the island’s utility bonds and adding the U.S. debt to each state based on their population, Puerto Rico has a lower debt-to-income ratio per capita than even Maryland or Virginia, which have top credit ratings, National said.

The analysis is in stark contrast with data from Moody’s Investors Service, which gives Puerto Rico the third-worst credit rating and says its net tax supported debt per capita is the highest among U.S. states and 11 times greater than Virginia’s. Moody’s projects recovery rates from 35 percent to 80 percent on commonwealth bonds.

The argument from National, which has about $4.7 billion in Puerto Rico exposure, is the latest sign of how those with the most at stake will challenge any move to restructure the island’s $72 billion of debt. After an Aug. 1 default on Public Finance Corp. bonds, OppenheimerFunds Inc. and Franklin Advisers Inc. sent a letter to Puerto Rico officials demanding repayment.

Dire Doubts

“The individual debt burden for Puerto Ricans is not as dire as is often portrayed,” the presentation concluded.

The Caribbean commonwealth has to pay for public schools, utilities and sewer systems, while states delegate those duties to localities, according to National. Most of its citizens also don’t pay federal income taxes, meaning they’re not responsible for repaying the U.S. federal debt of more than $18 trillion.

National, which began backing new deals last year after winning a credit rating boost, guarantees $1.35 billion of Puerto Rico Electric Power Authority bonds and $985 million of general obligations, along with smaller portions of other island issuers, according to its presentation. The Purchase, New York-based insurer would be on the hook to make up for shortfalls in debt payments.

Puerto Rico officials by Sept. 1 may propose the biggest debt restructuring ever in the muni market. Victor Suarez, the chief of staff for Governor Alejandro Garcia Padilla, said this week that the island will only be able to pay bondholders if it has enough cash to do so without jeopardizing public services.

Puerto Rico’s main water utility said late Monday that it plans to sell $750 million of revenue bonds as soon as next week.

(An earlier version of the story corrected the amount of U.S. debt outstanding.)

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