While most of the market has been focused on a Greek exit or even default, MBIA Inc. (NYSE: MBI) shares are suffering from a potential default closer to home. Puerto Rico announced on Monday that it was perilously close to what some might see as an economic death spiral, having accumulated $72 billion in debt that the commonwealth says is “not payable.”

As a municipal bond insurer, MBIA is taking the brunt of the damage in Puerto Rico because it insures a fair amount of Puerto Rican debt, relative to the total.

A recent figure from Bloomberg showed that two insurers have a combined $9.4 billion of Puerto Rican debt that they have guaranteed. Assured Guaranty Ltd. (NYSE: AGO) has a face value exposure at $4.9 billion, while MBIA’s face value exposure was put at $4.5 billion. MBIA’s National Public Finance Guarantee site lists 144 different issues under various Puerto Rico entities. The news flow and trading indications would seem to imply that MBIA may have more real risk here.

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Standard & Poor’s lowered its general obligation rating on the Commonwealth of Puerto Rico to CCC- from CCC+. According to Standard & Poor’s report:

The downgrades are based on our view that a default, distressed exchange, or redemption of the commonwealth’s debt appears to be inevitable within the next six months absent unanticipated significantly favorable changes in the issuers’ circumstances. We believe that the administration’s embrace of a report released June 29, that it commissioned, which recommends consideration of a restructuring of the commonwealth’s debts among other options, taken together with Puerto Rico’s ongoing fiscal struggles—a diminished liquidity position, constraints on external market access for needed cash flow financing, and delay in enacting a budget for the new fiscal year that begins July 1—indicates that the potential for a restructuring of some or all of the commonwealth’s debt is a significant possibility over the next six months.

The firm BTIG downgraded MBIA on Monday to Neutral from Buy, saying that this risk makes MBIA not buyable and that investors should not get involved in the name.

The governor had previously said that Puerto Rico would effectively do whatever was necessary to pay its debt. However, with no real bailout on the horizon, the consequences could be dire for this unincorporated territory.

Assured Guaranty shares were down 1% Tuesday morning to $23.48, in a 52-week trading range of $20.02 to $29.75. The stock has a consensus analyst price target of $35.20.

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Shares of MBIA were down over 20% at $5.06 earlier on Monday morning. At 11:30 a.m. Eastern Time, shares were down about 13% at $5.55, on more than 20 million shares traded. The consensus price target is $15.17, and the 52-week range is $5.00 to $11.44.

MBIA’s trading action seemingly would indicate that it has a much larger potential implosion risk than Assured Guaranty. Of course, time will be the judge on that matter, but it was hard to ignore two major drops in a row, on top of a falloff at the end of last week.

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