Thursday, March 28, 2024
HomeeconomyAs Puerto Rico default looms, questions about insured bonds

As Puerto Rico default looms, questions about insured bonds

With Puerto Rico saying it simply cannot pay its $72 billion debt, investors are increasingly worrying about whether bond insurers can cover a looming default. But some experts believe that those holding insured municipal paper from the island should not be worried. (Tweet This)

A Puerto Rican flag flies from a building in San Juan, Puerto Rico.Getty Images

"The … major bond insurers of Puerto Rican bonds … could probably handle a Puerto Rico default, depending on how much (the government) is willing to negotiate with bondholders," Richard Larkin, director of credit analysis at financial services firm HJ Sims, told CNBC. He added that holders of insured bonds should be in "good shape."

The insurers Larkin was referring to are Assured Guaranty and MBIA-owned National Public Finance Guarantee. Both National and Assured Guaranty told CNBC that their investors should not worry about a Puerto Rico default.

"National Public Finance Guarantee Corp. will continue to work with the appropriate parties toward a solution that addresses Puerto Rico's significant fiscal and operational difficulties while respecting the rights of creditors. In the meantime, National will ensure that its policyholders will continue to receive all of their scheduled interest and principal payments on time and in full," the insurer said in a statement.

Read More Puerto Rico more important than Greece, China: Cramer

Robert Tucker, head of investor relations and communications at Assured Guaranty, said in a statement that "We will continue to negotiate in good faith but will not hesitate to fully exercise all of our rights and remedies. As always, investors in Assured Guaranty insured bonds can rely on our $12 billion in claims-paying resources and unconditional and irrevocable guaranty of the scheduled payment of principal and interest when due."

Larkin made his remarks a day after Puerto Rico Gov. Alejandro García Padilla called out the island's creditors in a speech, saying they had to share in Puerto Rico's sacrifices.

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