Legislators in Puerto Rico recently passed the Fiscal Sustainability Act and the Recovery Act . The markets are interpreting these Acts (particularly the Recovery Act) as an indication that the Commonwealth is less likely to honor their debts, including the debts of the Commonwealth and Cofina.

For the past six months, the administration has made a balanced budget a priority. To that end their most recent budget is indeed balanced (2015). Not a small feat and one to be applauded. As part of the balanced budget proceedings, they have concluded that they no longer can support the inefficient "Public Corporations" that have routinely required more money to make ends meet. The logic being that these corporations should be able to function profitably and if they can't they need to change their cost structure. The Fiscal Sustainability Act allows inefficient labor contracts to be broken and fixed and the Recovery Act outlines a path to restructure the debt if needed.

Most importantly, the primary reason legislators passed these two Acts was to protect the General Fund and by default enhance the credit of the General Obligation.The markets are not viewing the most recent events negative for all PR credits; we view these events positively for the GO and COFINA bonds.