The Government Development Bank for Puerto Rico, the Puerto Rican government agency responsible for its debt deals has hired a well-known debt restructuring firm leading many in the financial industry to speculate that Puerto Rico is preparing to revamp its municipal debt.
According to news reports, Puerto Rico officials refused to say whether the firm was hired as part of an effort to restructure the commonwealth’s debt. However, the firm has represented many financially challenged countries such as Greece, Iraq, Iceland and Argentina.
Puerto Rico’s Constitution prohibits it from filing for federal bankruptcy protection like Detroit or other United States municipalities have done in the past. Accordingly, the prospect of restructuring Puerto Rico’s debt has caused uncertainty among Puerto Rico bond investors as to the effect such will have because there is no template or precedence to follow. As Puerto Rico appears to be seeking to reduce its debt load, Puerto Rico investors worry that a restructuring of the debt could result in additional losses to the large losses already suffered on their bond holdings or the closed-end funds held by many of Puerto Rico residents.