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I Can Default Too

30 June 2015 by lberuti

“We won’t let the heavy burden of inherited debt send us to our knees”. Does that sound familiar? Well, this is what Mr Alejandro Garcia Padilla, Governor of Puerto Rico said in a televised interview yesterday night. The island state will seek to delay the payments on its $72bln debt for “a number of years”, and a debt restructuring plan should be put together before the end of August. Fitch duly took note and lowered Porto Rico’s rating to CC, which means that “default of some kind appears probable”. A few US financial entities still have significant exposure to Puerto Rico. Unsurprisingly MBI (MBIA AA), AGO (Assured Guaranty Corp), FSA (Assured Guaranty Municipal Corp), which are the most exposed monolines, were the most affected. On top of the 100bps, 90bps and 70bps widening their respective risk premia suffered yesterday, they added another 70bps, 30bps and 30bps today.