Puerto Rico's 'death spiral' gets a reprieve

Puerto Rico makes a payment

Several days after Puerto Rico's governor declared his island's debts "not payable," a spate of borrowers there indicated just the opposite, making good on some $1.9 billion in debt payments that were due by Wednesday evening.

Late on the due date, two people involved with the various debt negotiations said that all the commonwealth's outstanding payments July 1 had been met. A separate statement from a unit of the bond insurer MBIA, which would have been responsible for covering a number of the missed payments, asserted that all the Puerto Rican entities that had faced interest fees or principal repayments that day had paid them.

The National Public Finance Guarantee Corporation, the public-finance insurer that is a subsidiary of MBIA, said in a news release that Puerto Rico's power authority, known as PREPA, and "all other Puerto Rico-related obligors with National-insured debt-service payments due July 1, 2015, made such payments as scheduled."

The payments, a small increment of Puerto Rico's $72 billion in cumulative debt, nonetheless renewed investor confidence in what some market participants worried was becoming a dire financial picture.

Earlier in the week, Puerto Rico Gov. Alejandro Garcia Padilla had said his island's troubled economy was in a "death spiral." A government-commissioned report, coauthored by a former International Monetary Fund official, had argued for drastic measures to reduce its debt load and improve a persistent revenue gap.

But by midday Wednesday, with news trickling out that two key sets of debt issues—$645 million in so-called "general-obligation" bonds, which enjoy broad creditor protections, and an additional $416 million in bonds issued by PREPA—had been paid, what had been a relatively gloomy sentiment toward the Caribbean territory reversed. Publicly traded GO bonds that mature in 2035 ticked up in price from their Tuesday lows to the high 60-cent range, and a class of bonds tied to PREPA held steady at about 60 cents on relatively low volume, traders said.