Puerto Rico's economic woes worry bondholders - FOX13 News, WHBQ FOX 13

Puerto Rico's economic woes worry bondholders

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Puerto Rico just balanced its first budget in more than a decade. Sales taxes are up. But optimism remains low when it comes to those making financial investments in the commonwealth.

Maglan Capital hedge fund managers David Tawil and Steven Azarbad seem to think Puerto Rico itself is not in any imminent financial danger, just its major utility companies. So why is this news to you? The simple answer: Puerto Rico is a major player when it comes to what Wall Street investors are interested in. It is one of the most prolific bond issuers in the United States, with $70 billion in outstanding debt, Tawil said.

The IRS has allowed Puerto Rico to issue bonds on a triple tax-free basis, meaning you can buy Puerto Rico debt free of federal, state, and city taxes.

But, with its major utility companies -- Puerto Rico Electric Power Authority to the Puerto Rico Aqueduct and Sewer Authority -- on the financial precipice and downgrades from the major U.S. ratings companies, Wall Street is scared of Puerto Rico impacting the entire mutual fund and bond markets. That would more than likely affect some of your investments, too, because the debt could be held in your 401(k) or other municipal bond mutual fund you may own.

Justin Velez Hagan, the founder of the National Puerto Rican Chamber Commerce and an economic policy researcher at the University of Maryland, said that it has been bad for most owners of bonds in Puerto Rico.


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