Moody’s downgraded Puerto Rico’s general obligation (GO) rating to Caa1 last January, on par with Argentina, a notch (a very small notch) above Venezuela, but worse than Bangladesh.
Now the government of Puerto Rico doesn’t want to pay up.
We all know what Louis would say,
Mary O’Grady writes on Puerto Rico:
A group of institutional bondholders—including Franklin Advisors and Oppenheimer Funds—representing 40% of the outstanding bonds and more than 500,000 individual bondholders have offered the company a restructuring plan to avoid receivership. It includes a new, $2 billion capital commitment to modernize power-generation equipment and cut costs. If Prepa [Puerto Rico Electric Power Authority (Prepa)] can improve its operational efficiency, the group believes that its proposal can lower the electricity rate to the range of 22 cents per kilowatt-hour from the 28-cent range of recent years.
This intervention is unlikely to appeal to Puerto Rico’s political class, which uses Prepa as a populist honey pot. The company has a dismal collection record and one of the most notorious deadbeats is the government. A Nov. 15, 2014, report by FTI Capital Advisors found that the company had “over $200 million in accounts receivable from public corporations, of which approximately 70% is over 120 days old.”
Making them pay is the right thing to do; it’s just not the Puerto Rican thing to do.