Puerto Rico avoids default on over $350 million in bond payments

The Governor said the territory is facing a situation where it must decide between defaulting- failing to make the payments on its debt- or cutting public services.

The Government Development Bank for Puerto Rico announced it paid the full $355 million in principal and interest payments that were due Tuesday.

Garcia Padilla will also speak on Tuesday at a U.S. Senate Judiciary Committee hearing to discuss potential fixes for Puerto Rico.

“The crisis is not five years from now; the crisis is in three weeks- in January Puerto Rico runs out of money period and will not be able to pay its debt”, says Angel Ortiz, a former member of Philadelphia City Council.

Another default could have triggered lawsuits, further spooked investors and undermined the island’s efforts to climb out of $72 billion in debt.

“We need a restructuring process that is fair to all stakeholders, lowers electricity rates and promotes economic growth”, Padilla said.

Stephen Spencer, managing director of Houlihan Lokey in Minneapolis, Minnesota, said the comparison to bankruptcies in other municipalities, notably Detroit, distressed him. “I will do whatever in my powers to protect the essential services to the people of Puerto Rico”. The agencies targeted include the heavily indebted Highway and Transportation Authority, the Infrastructure Financing Authority and the Metropolitan Bus Authority.

Despite the move the territory is struggling to find money for government services and future debt payments.

Puerto Rico made its December debt payments on Tuesday, averting a second default since August.

But he said the island is running out of cash.

Republicans have used the Puerto Rican debt crisis to scold the territory’s local government for perceived financial mismanagement.

Grassley asked no questions of the governor after his testimony.

The Obama administration has said that Puerto Rico’s economic woes could quickly turn into a humanitarian crisis unless Congress adopts a blueprint for dealing with the island’s crushing debt burden.

Democrats at the hearing called on Congress to act.

Over the past year, Puerto Rico has been no stranger to dealing with creditors. Through its subsidiary National Public Finance Corp., MBIA insures the general obligation-guaranteed portion of the bank’s debt payment.