While much of the financial world remains focused on economic developments in Greece and China, MKM Partners analyst Harry Fong released a report this week discussing the potential outcome of a default in Puerto Rico.

Fong discussed what he sees as the best path forward for the struggling nation and the lessons that Puerto Rico can learn from Detroit’s recent bankruptcy proceedings.

Something’s Got To Give

A prominent municipal bond fund manager recently suggested that Puerto Rico must cut its total debt from about $72 billion to about $32 billion.

Fong believes that much of Puerto Rico’s debt will ultimately be restructured, but stresses that the government has no authority to force creditors to accept changes to the terms of their debt. Instead, the government must convince debt holders to swap their current debt for new debt with amended terms. Fong believes that this technical default is the most likely outcome in Puerto Rico.

Voluntary Swap

Fong believes…

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