Barron’s Recap: Puerto Rico In Trouble

1. Barron’s Recap: Puerto Rico In Trouble

2. Nelson Hem, Benzinga Staff Writer

   August 25, 2013 8:07 PM

   

   This weekend in Barron’s online: credit risk in Puerto Rican bonds, a special feature on the top independent financial advisors, and the prospects for Peabody Energy, Take Two Interactive and Microsoft.

   Cover Story

   «Troubling Winds» by Andrew Bary.

   Puerto Rico’s huge debt could be an even bigger problem than Detroit’s, says Barron’s in this week’s issue. Bond investors should beware, because this onerous debt could overwhelm attempts to resuscitate the U.S. territory’s persistently struggling economy.

   The article points out that Puerto Rico has nearly $70 billion of total debt, and more than $30 billion of unfunded pension liabilities. Among U.S. states, only California and New York would rank higher in total debt. Puerto Rico’s debt per capita is 10 times the average of the 50 states.

   «There’s a debt spiral in Puerto Rico that will not turn out well unless there is a dramatic turnaround in the economy,» one expert is quoted as saying. However, Puerto Rico has been in recession since 2006. Its unemployment rate is 13.2%, and more than one in four residents receive food stamps.

   The article goes on to show the steps the territory has taken to reverse course economically, and it points out some key differences between Puerto Rico and Detroit. It also discusses what is at stake for American investors of municipal bonds, or mutual funds heavily invested in them.

   See the likelihood that the federal government would step in to aid Puerto Rico if it sought financial help. See what might prompt downgrades in the credit ratings of Puerto Rico’s general-obligation bonds. And see whether Barron’s thinks the tempting yields on Puerto Rico debt are enough to compensate for the risk.

   Read more: http://www.benzinga.com/media/barrons/13/08/3862897/barrons-recap-puerto-rico-in-trouble#ixzz2esfJ4iN8