With default concerns at the forefront, Pacific Investment Management Co. also said it doesn’t own any Puerto Rico debt, reports Michelle Kaske for Bloomberg.
“Adjusting to a sustainable servicing capacity over the longer term would necessitate larger haircuts through reduction of principal,” Sean McCarthy, head of Pimco’s municipal credit research in New York, said. “If not, then Puerto Rico, like Greece, faces future rounds of restructuring.”
McCarthy argued that the island may be forced to pay less than the full value of securities when they mature, pointing to Puerto Rico’s economic weakness. The economy has shrunk every year but one since 2006 and is expected to contract 1.2% in 2016. Moreover, the more are abandoning the island, with a projected 245,000 residents expected to leave by 2025.
“Puerto Rico’s debt is not sustainable without real economic growth and a consolidated surplus,” McCarthy added. “These will remain elusive over the next several years by any reasonable estimate.”
For more information on the munis market, visit our municipal bonds category.
Max Chen contributed to this article.