Puerto Rico makes debt payment

Puerto Rico first defaulted on a payment in August, when a fraction of a $58 million allotment was paid to creditors with the island’s Government Development Bank. Daniel Hanson, a Height Securities analyst closely following Puerto Rico, said in a November 25 note that a default could put GDB into receivership, which would “almost certainly result…in a stay” on its ability to move cash and, in turn, on the government’s ability to support operations.

On the same day that Puerto Rico avoided default by making a critical debt payment, the island’s governor came to Capitol Hill to lobby a skeptical Congress for permission to restructure the US territory’s chronic debt.

In his comments to a senate judiciary hearing Governor Garcia Padilla said, “Starting today the commonwealth of Puerto Rico will have to claw back revenues pledged to certain bonds issued in order to maintain public services”.

“Can Puerto Rico take a dollar away from the Highways and Transportation Authority (HTA) to pay a police officer?”

The payment included about $270 million of payments to general obligation bondholders, whose right to repayment is backed by a constitutional guarantee.

Most of the payment owed on Tuesday, $273 million, falls under what is known as a “general obligation” (GO) and is protected by the island territory’s constitution, the newswire detailed. The yield traded as low as 11.1 percent Tuesday. Some argue that Puerto Rico’s convoluted political status has hastened to its economic decline, because it receives less federal funding than US states and must get congressional approval for certain actions as it tries to manage its debt.

Testifying at the hearing Tuesday, he said government efforts over the past 10 years to reduce spending, raise taxes and lay off tens of thousands of government employees has only added to the island’s economic woes.

The payment “narrowly avoided a complete default that could have hobbled its government”, Democratic Sen. “By the time he runs to the next coupon payment that he needs to worry about, he may not have enough water left in that pail to put that fire out”.