Shares of bond insurers fell hard on Monday after Puerto Rico Gov. Alejandro Garcia Padilla told The New York Times that the Commonwealth would not be able to make its debt obligations. The news prompted brokerage firm BTIG to downgrade both Assured and MBIA to "hold," sending shares of both companies down a respective 13 percent and 23 percent.
BTIG estimates Assured and MBIA have over $10.5 billion in gross exposure to Puerto Rico's debt, and the firm's previous buy rating was predicated on previous promises from the governor that Puerto Rico would do whatever it took to honor its debt obligations.
And according to some market participants, the plight of bond insurers is just the start of broader debt crisis.
Meanwhile, Standard & Poor's has lowered its credit rating on Puerto Rico to CCC-minus from CCC-plus with a negative outlook, as the governor of the commonwealth seeks to restructure the debt under U.S. bankruptcy code.
"It's a substantial threat," bond expert Larry McDonald said Monday on CNBC's "Power Lunch." "The problem we're seeing around the world is that political officials that are borrowing money in the capital markets have not been completely forthcoming about their financials."