NEW YORK (TheStreet) -- Investors may be too wrapped up in the oscillating U.S. stock market and the selloff in China to notice Puerto Rico's troubles, but the commonwealth's problems are worsening. George Schultze, CEO of Schultze Asset Management, said the recently pulled $750 million sewer bond offering is evidence that "the whole island is distressed."

"One of the reasons they pulled the offering is because the investors didn't like the idea that the island was at the same time asking the Supreme Court to approve a new bankruptcy law to restructure their debt. The problem is that with about $72 billion in debt, Puerto Rico really needs to restructure its debt."

Schultze said Detroit's recent return to the bond market with last week's $245 million offering is no reason to be sanguine about Puerto Rico's future. He said Detroit's journey through bankruptcy was by no means clean, even if the Motor City did eventually come out on the other side. Schultze said the debt situation in Puerto Rico is about 10 times larger in terms of municipal debt than Detroit when it went into trouble.

"The fact that they can't benefit from Chapter 9 laws to restructure their debt just makes it much more complex, so they will have to restructure debt on an issuer-by-issuer basis," said Schultze. "It's pretty messy without a guideline and a template law to govern the whole thing."

Schultze said he is avoiding Puerto Rican bonds, and instead is scooping up real estate assets on the island.

"There are a lot of auctions and liquidation sales," said Schultze. "There are heavily discounted properties available for sale that are pretty interesting there. We are looking at buying commercial office properties at well below replacement value and replacement cost."

As for high-yield assets here in the U.S., Schultze said he expects further problems in the energy sector to drag down that asset class, similar to the way it did last winter.

"Energy is about 20% of the high-yield market, and it's just getting worse," said Schultze. "Oil prices are below $40 a barrel, down from over $100 last year. The situation for these energy companies is getting worse and worse."

Schultze expects the market to be severely shaken when Samson Resources (SSN) files for bankruptcy next month. That will be the largest energy bankruptcy in history, in Schultze's opinion, and Samson will not be the last driller to go down this cycle.

"The best trade, if you are looking to make a trade, is to short sell companies in the energy space that have a reasonable prospect of heading into bankruptcy," said Schultze. "And there is a growing number of those."

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