Investors of Puerto Rico bonds very much liked their ‘tripled-tax-free’ nature, but the island’s debt crisis soured the outlook for those investments. Puerto Rico's debt crisis casted a cautionary spotlight for investors on the bonds that were issued by distressed governments.

Puerto Rico bonds have been known for their ‘triple-tax-free’ status, which means investors were exempted from federal, state and local income taxes. But now these bonds have fallen out of favor with investors amid the island’s economic crisis.

Concerns about a default escalated after the Puerto Rico Gov. Alejandro Garcia Padilla said Monday that the commonwealth's $72 billion in bond debt is ‘unpayable’.

But the island celebrated a win two days later when investors signed a deal to avoid a default on a $415 million debt payment. This was only a temporary reprieve as now investors and the island have to sign an agreement on the electric-utility Prepa's debt restructuring by September.

Presently investments in the island’s bonds are safe. But if in case the island opts to conserve cash and stop paying debts, the issue might arise.

Matt Fabian, managing director of Municipal Market Advisors, said Puerto Rico debt investors have been limited mostly to sophisticated hedge funds in recent years.

The Governor has called for Congress to let the island's governmental entities file for municipal bankruptcy, which is currently available only to local governmental units in the 50 states.

Congress’ action is still awaited, but if in any case it changes the law that would give Puerto Rico access to Chapter 9, bonds could be at risk.

Fabian said, “Either they have to put major austerity onto a deeply economically distressed population, raise taxes — which is only going to collapse the economy further — or cut their debt”.