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Largest Municipal Default

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Puerto Rico has officially defaulted and has triggered the largest municipal default in U.S. history. The island commonwealth finally ran out of money on Monday after extraneous efforts to stay afloat . They missed their deadline to pay back $58 million , and only paid $628,000.

The commonwealth is now in a spew of legal actions, which many of them counter well-organized hedge funds that picked up the debt at tense levels and now are looking to maximum reparations. Puerto Rico is not covered by the “Chapter Nine” bankruptcy code in the US, so it can not use the same method that Detroit used back in 2013 after defaulting.

If hedge funds press for their returns you could see Puerto Rico’s economy fall to shambles, including the dismantlement of their education systems. Puerto Rico is becoming a test case of whether hedge funds and financial creditors can legitimately dictate terms to sub-sovereign states, or whether there is a greater social interest in limiting their legal powers.

 

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