Puerto Rico’s Comeback Was Nigh, But Then the Coronavirus Came

Puerto Rico’s wretched luck has been as constant as its tides. But just a few months ago, it seemed to be turning.

After a deadly hurricane, ruinous earthquakes, political upheaval and the largest-ever U.S. municipal-bond default, the economy was growing modestly. Unemployment was falling, and the commonwealth was moving forward on a three-year negotiation to restructure nearly $18 billion in debt, crucial to exiting bankruptcy.

Then came the coronavirus.

In response, Puerto Rico barred cruise ships, imposed a curfew and shut all nonessential businesses on March 15. The forceful measures, which are now being loosened, are credited with controlling the outbreak. As of Thursday, the island of 3.2 million had 5,352 confirmed and suspected cases of the coronavirus and 144 deaths due to Covid-19.

But the measures have decimated industry. The pandemic-gripped economy is now expected to collapse 4% in the fiscal year ending June 30 and shrink through 2025, according to a federally appointed oversight board. By its calculation, the island will pull in just enough revenue to provide essential services -- and there won’t be enough to repay bondholders, at least not under the terms already agreed upon.

And bankruptcy negotiations? On hold until further notice.

Jorge Irizarry, who heads a group that represents some 60,000 bondholders on the island, said his clients have already lost half of their investments under the court-mandated restructuring, which began in 2017.

“We thought we had an idea of what our conditional losses would be, but now nobody knows where this is going to come out,” said Irizarry, executive director of Bonistas del Patio. “Here we are in 2020 -- 14 years into a recession -- and there is no light at the end of the tunnel.”

Puerto Rico’s debt attracted investors throughout the U.S. for its higher yields and because the securities are tax exempt in all 50 states. For years the commonwealth sold debt to paper over budget gaps. When it fell into bankruptcy in May 2017, the commonwealth and its agencies had $74 billion of debt and the pension system owed current and future retirees $50 billion.