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The Struggle Continues in Puerto Rico

Nearly a year after Puerto Rico Governor Alejandro Garcia Padilla declared that the commonwealth couldn't pay its debt, little has been resolved to give its residents or its investors any solace.

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What Happened
On June 29, 2015, Puerto Rico Governor Alejandro Garcia Padilla declared that the U.S. territory couldn't pay its $72 billion of debt. After years of economic contraction, population loss, staggering poverty, and heavy borrowing to pay operating costs and debt payments, officials say they're desperately low on liquidity and out of options.

Although an initial debt payment was made directly after the 2015 announcement, various commonwealth agencies have since missed payments to creditors. Last year, defaults were relatively modest in size and payments secured mainly by funds appropriated by the legislature. Because the commonwealth hasn't guaranteed repayment of such debt, investors have very little recourse when a payment is missed.

Elizabeth Foos does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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