Last week, on June 29, 2016, President Obama signed a bill designed to help Puerto Rico’s government restructure its excessive debts into law – the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). CNN reports:

On Thursday, President Obama signed a bill known as PROMESA (Spanish for “promise”) to help Puerto Rico get out of its massive economic crisis.

The island has run up nearly $70 billion of debt about $20,000 per resident). At the same time, the island’s population has shrunk dramatically. Puerto Ricans are moving to Florida, Texas and elsewhere in the mainland U.S. for better paying jobs.

PROMESA was a bipartisan compromise with the Republican House and Senate. Both chambers approved the bill by a large margin.

Now law, PROMESA allows the territorial government of Puerto Rico to be able to restructure the terms of its debt obligations in a process similar to bankruptcy, but with the provision that the territory’s finances will now be under the control of an independent board that will be appointed by the President and the U.S. Congress, rather than under the exclusive control of Puerto Rico’s government as it was before.

Two days after PROMESA was signed into law however, on July 1, 2016, the U.S. territorial government of Puerto Rico officially defaulted on another $2 billion of its total $70+ billion debt anyway, an amount that included for the first time some $779 million of the portion of the government’s debt that is supposed to be guaranteed to be paid to its creditors by the territory’s constitution. The Wall Street Journal has the story:

Puerto Rico will default on its constitutionally guaranteed debt for the first time Friday by failing to make most of some $1 billion in payments due, officials said on Friday.

The island’s Government Development Bank said the territory faces an imminent cash crunch and that its cash balances have dropped to “dangerously low” levels. As a result, the government isn’t likely to make any of the $779 million payment on general obligation bonds due Friday.

The default will be particularly expensive to the U.S. insurance companies that underwrote Puerto Rico’s government debts:

A default would force the three major insurers backing Puerto Rico’s debt to pay out as much as hundreds of millions of dollars to bondholders. Ambac Financial Group backs $122 million in Puerto Rico debt due Friday, company disclosures show. National Public Finance Guarantee Corp. backs $173 million in general obligation debt coming due Friday, records show. Assured Guaranty Ltd. backs $428 million coming due in the third quarter, most of it also due Friday.

Puerto Rico’s government took the action to officially default on making its debt payments due on July 1 just minutes after President Obama signed the PROMESA bill into law.

Puerto Rico’s default on its constitutionally guaranteed General Obligation debts marks the first time that any state or territorial government in the United States has defaulted on such constitutionally guaranteed debt since Arkansas did in 1933, during the Great Depression.