Once seen as a golden opportunity, big-money investors are now scrambling to keep their bets on Puerto Rico whole.
Hedge funds, mutual funds and other investors piled in over the last two years, thinking others had overreacted to the island's fiscal problems by dumping local bonds.
But the value of their debt holdings fell sharply early this week on a string of bad news.
The U.S. territory's governor surprised observers by saying its $72 billion in debts weren't payable. The White House explained that it was not contemplating a bailout. Ratings agencies cut their assessments of Puerto Rican bonds. And a report by a group of former International Monetary Fund officials detailed just how bad the island's fiscal problems are.
"The coming weeks will bring showdowns between ... the governor and bondholders, and out of the rubble, we expect the PR government to emerge leaner, having shed some debt and restructured some operations," Height Securities said in a report Monday.
In other words, more observers think that hedge funds and other creditors should expect to accept less than face value for the bonds they own. Some Puerto Rico bonds were trading at 68 cents on the dollar Tuesday.