White House says no debt bailout

Puerto Rico bonds sink

WASHINGTON, Oct 8, (AP): US President Donald Trump helped sink Puerto Ricans bond prices with talk of wiping out the US territory’s debt but his budget director dismissed the idea of a bailout Wednesday as the bankrupt island fights to recover from Hurricane Maria.

The federal government lacks the authority to simply do away with Puerto Rico’s staggering $74 billion debt, much of which is tied up in a court-supervised restructuring process after the territory sought a form of bankruptcy protection last year.

“It likely that there will be significant debt reduction in that process. It is not something that the president can make happen,” said Brian Setser, a former top Treasury Department official who worked on Puerto Rico’s debt crisis.

The type of federal hurricane recovery aid that Puerto Rico receives could influence how the repayment process unfolds. However, no matter how the details shake out, creditors won’t be paid anytime soon. Puerto Rico must first deal with hurricane clean-up and then try to plug a widening fiscal hole.

Puerto Rico’s bonds, which have been falling since Hurricane Maria struck, took a sharp plunge Wednesday. One widely held benchmark general obligation bond was trading at 38 cents on the dollar, down from 46 cents a day earlier. Companies that insure billions of dollars of Puerto Rican debt also took a hit. Shares of MBIA, Assured Guaranty and Ambac Financial Group all tumbled on US markets.

Trump told Fox News on Tuesday that federal officials would have to look at Puerto Rico’s debt structure and “we’re going to have to wipe that out.” It was a jarring comment from the president, who has repeatedly reminded Puerto Rico about its debts to Wall Street while the island struggles with a disaster that Gov Ricardo Rosello estimated could cost more than $90 billion.

“If you are a bondholder, you are surprised and you are no doubt wondering what he has in mind,” Setser said.