Puerto Rico Facing Default on $72B Debt - Why You Should Care

USA Today Story & VIDEO

Quote:

...With several massive payments looming in the coming weeks, Padilla scheduled a media conference for 5 p.m. Monday to address the situation. Over the weekend, Padilla told The New York Times that the government's finances were "in a death spiral" and that "the debt is not payable." The inability of the U.S. territory to repay its debt, combined with the financial crisis in Greece, would have far-reaching implications for financial markets and unsuspecting American investors. Morningstar, an investment research firm based in Chicago, estimated in 2013 that as much as 80% of Puerto Rico's debt has found its way into muni-bond funds, and 180 mutual funds in the United States and elsewhere have at least 5% of their portfolios in Puerto Rican bonds.

Quote:

...Municipal bonds are already exempt from state and local taxes, and Puerto Rican bonds enjoyed the added benefit of being exempt from federal taxes as well. That "triple-tax-free" status made the territory's bonds incredibly popular to investors. From 2000 to 2012, the government's public debt nearly tripled from $24 billion to $70 billion, according to the Center for a New Economy in Puerto Rico. That left the island's governments inundated by debt payments. Combined with thousands of Puerto Ricans leaving the island for the U.S. mainland every year and a constantly sputtering economy, credit agencies lowered Puerto Rico's bond rating to near-junk status and warned of a full fiscal collapse.

You might want to make sure your portfolio doesn't include these bonds. From what I understand, some large retirement funds have invested in these.

Puerto Rico Facing Default on $72B Debt - Why You Should Care