HARDLY A BLINK
It continues to surprise, if not shock us that some of the larger credit events over the summer have not had a bigger impact on the markets. While Greece is the prime example of limited contagion risk, we are tired of talking about it (and you are likely tired of hearing about it) so we will simply say that the firewall held. The most recent credit event is the now official default from Puerto Rico, which has been characterized as the good ole U.S. of A.’s version of Greece. There are certainly valid comparisons between the two, with an uncompetitive economy that benefitting from an easy borrowing environment that that allowed it to over lever. Many comparisons end there however, with a far more complex borrowing structure and a disparate group of borrowers making negotiations potentially more complex than even what we witnessed in Greece. There is also no IMF or federal government’s involved, so a big pocket bailout is unlikely in the case of P.R. Just to bring everyone up to speed on where we stand with the Commonwealth, they officially defaulted on an appropriation backed transaction issued by the Public Finance Corporation when earlier this week only a $628,000 payment was made on a scheduled $58 million principal and interest payment. The government also suspended its monthly payments into a fund that is used to make upcoming G.O. debt payments. While the default on the PFC debt will lower the ratings on that specific debt to “D”, we have not yet seen action taken on any of the other ratings on PR paper, with the G.O. debt standing at Caa3/CCC-. According to Bloomberg, there are an additional $600 million in P&I payments coming due in August and $5 billion within the next 12 months.