`Question Everything': Puerto Rico Hits $3.8 Trillion Market (1)

America’s local governments frequently pledge a slice of their revenue to investors to make their bond deals more attractive by adding an extra layer of security. But Puerto Rico’s record-setting bankruptcy has cast that safety in doubt.

That’s because bondholders who were promised a dedicated share of the island’s sales-tax revenue have seen that rolled back in court, where creditors since 2017 have been squaring off over who has the highest claim to the distressed government’s cash.

On Feb. 4, U.S. District Judge Laura Taylor Swain approved a restructuring of more than $17 billion of sales-tax-backed bonds that will leave ...