Municipal Bond Forum
Withstanding the worst
Q
I need a means of measuring the likelihood of problems with Puerto Rico bonds. A power and light company generally sounds OK as long as consumers can pay their bills. But would hard times in Puerto Rico be that much different than hard times here in the states?
A
James A. Klotz responds:
In the Standard & Poor’s report we highlighted in our recent commentary, “Herd Mentality Yields Unique Value,” the rating agency attempts to do exactly what you are requesting: provide a means of measuring the ability of insurers to meet their responsibilities if payment problems develop with Puerto Rico bonds.
To this end, S&P assumes a worst-case scenario in its attempt to gauge the viability of the insurers, even if the economy experiences symptoms similar to those of the Great Depression in the 1930s. We took this to be a very conservative assumption.
Naturally, all investments contain a degree of risk and there obviously are no guarantees.
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.