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Puerto Rico Tests the Trump Strategy to Wipe Out Debt

Matt Fabian, a partner with Municipal Market Analytics, put it more bluntly to Kaske: “The courts generally allow the debtor to act as they please, so even a logical inconsistency this glaring probably won’t get in the way of plan implementation.” He agrees that there might be a stronger argument that Cofinas violated the debt limit.

The rest of the muni market would probably appreciate it if Puerto Rico’s restructuring resolved some lingering questions— specifically, how G.O. bonds should fare in cases of extreme distress. Connecticut is a ways away from such a scenario, but it nevertheless raised red flags last year when it issued a new class of securitized bonds that effectively pushed its outstanding full faith and credit debt into a subordinate position. Chicago has issued new, higher-rated securities through the Sales Tax Securitization Corp., which is set to sell more taxable obligations this week.

Tim Holler