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Puerto Rico’s Day Of Economic Reckoning Has Arrived

December 9, 2014 Blog

For years, Puerto Rico’s economy has been hurtling headlong for the brink.

Regular readers of this blog well know of Puerto Rico’s financial woes. Its exploding $70 billion municipal debt and difficulty raising funds through bond offerings have led to forecasts of economic doom, including bond defaults or restructuring. Such events would further cripple the island Commonwealth’s already stagnant economy.

It’s hard to fathom, but the news for Puerto Rico is getting even bleaker.

A clear sign of trouble is Puerto Rico delaying a bond sale of up to $2.9 billion until early 2015, which Reuters reported last month. The report also noted that the “governor threatened to shut down the island’s public transportation system after lawmakers revolted against a tax increase to back the bonds.” A deal is the works to finance the $2.9 billion in borrowing, but it depends on a fractious Senate to approve a whopping new tax on oil. Stay tuned.

To add insult to injury, over the past two weeks, the FBI has raided two of Puerto Rico’s faltering public authorities, arresting one organization’s treasurer for alleged bribery in programs using federal funds.

Reuters reported last week that the FBI arrested the treasurer of Puerto Rico’s Highways and Transportation Authority in connection with a bribery-for-payment scheme involving three unnamed contractors.

It was the second such FBI raid on a Puerto Rico authority in as many weeks. On November 25, the FBI seized documents and computer equipment at the offices of the Aqueduct and Sewer Authority. No arrests were made in that instance.

As Reuters noted: “The recent enforcement activity raises questions over governance at the corporations that have accumulated over $20 billion in debt. It also comes as the commonwealth tries to raise up to $2.9 billion to repay $2.2 billion that HTA owes the Government Development Bank, the financing arm of Puerto Rico’s government.”

Reuters’ conclusion was grim: “Puerto Rico’s economy is floundering and it has over $70 billion in debt. At least one public corporation, the electric authority PREPA, is expected to default on over $9 billion. The HTA has over $7 billion in debt and can default under a controversial law passed earlier this year.”

After an FBI raid, it will take nothing short of a miracle for the Aqueduct and Sewer Authority to raise the $770 million needed through a bond offering next year.

What’s more, it looks like transportation workers may not get paid on December 15.

FBI raids of public authorities, arrests of government officials, potential defaults on bonds, and no access to raising capital are signs of disaster.

Puerto Rico is on the brink. Its day of reckoning appears to have arrived.

But Puerto Rico, as a US territory, cannot file for bankruptcy like Detroit. Who on earth can Puerto Rico turn to and ask, Brother, can you spare a dime?

Zamansky LLC are securities and investment fraud attorneys representing investors in federal and state litigation against financial institutions. For more information about Zamansky LLC, please visit