Can Puerto Rico Keep the Lights On?

After Moody’s Investors Service cut Puerto Rico’s rating to B2, five steps below investment grade, on July 1, the price of the island’s general obligation bonds plummeted to record lows. The downgrade puts Puerto Rico in a tough spot: No U.S. state or city with a credit rating that low has ever borrowed money in the public markets, according to data compiled by Bloomberg. “They’re done,” says Matt Dalton, chief executive officer of Belle Haven Investments, which manages $2.1 billion in munis. “They’re not going to be issuing any more debt on the island. I don’t see how they can bring people back to the trough at this point.”

Puerto Rico and its agencies have operated for years on borrowed money—accumulating $73 billion in debt and, since 2000, paying Wall Street $910 million in fees for arranging its bond sales, Bloomberg data show. Its economy has contracted about 11 percent since 2006, according to its Planning Board. The unemployment rate of 13.8 percent is more than twice the U.S. rate.