GLOBAL ECONOMY

‘Safe’ Puerto Rican debt stirs worries

Puerto Rico Gov, Alejandro Javier Garcia Padilla testifies on Capitol Hill in Washington, Tuesday, Dec. 1, 2015, before the Senate Judiciary Committee hearing on Puerto Rico's fiscal problems. Puerto Rico and its debt crisis takes center stage in Congress as its governor testifies before a Senate panel about the U.S. commonwealth's financial woes and the demands of creditors.(AP Photo/Pablo Martinez Monsivais)

Puerto Rico Gov, Alejandro Javier Garcia Padilla testifies on Capitol Hill in Washington, Tuesday, Dec. 1, 2015, before the Senate Judiciary Committee hearing on Puerto Rico's fiscal problems. Puerto Rico and its debt crisis takes center stage in Congress as its governor testifies before a Senate panel about the U.S. commonwealth's financial woes and the demands of creditors.(AP Photo/Pablo Martinez Monsivais)

As Puerto Rico runs out of cash and approaches a Jan. 1 due date for about $1 billion in debt payments, investors increasingly are uneasy about the fate of bonds sold with a near guarantee.

The bonds, backed by sales taxes and known by the Spanish acronym Cofina, were issued starting a decade ago to plug budget gaps and repay other lenders. The debt at the time was considered the island’s safest offering, and Cofina bonds soon became the biggest chunk of Puerto Rico’s debt outstanding.

Now, as the struggling commonwealth redirects money intended for some debt to pay bonds with better legal protections, some analysts are predicting it will soon target Cofina bonds to avoid defaulting on its constitutionally protected general-obligation debt. Such a move would spark a showdown over its two most-sacrosanct obligations.

A spokeswoman for Puerto Rico declined to comment on Cofina.

As a sign of the concern, many of the Cofina bonds already trade below 60 cents on the dollar, less than benchmark debt from the island.

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