Puerto Rico Makes A Bond Payment, Avoiding Default, For Now

Puerto Rico has made a December 1 bond payment, avoiding a second default, but its liquidity position is severely constrained, the commonwealth’s Government Development Bank said in a statement.

USA Today quoted Sen. Earlier this year, Gov. Alejandro Garcia Padilla admitted Puerto Rico would be unable to pay some $72 billion it owes to bondholders.

Blumenthal did not elaborate on how much would be paid on Tuesday nor what sort of arrangement was met with creditors. Puerto Rico’s next challenge comes January 1 when various Puerto Rican entities must pay $1 billion to creditors.

“The commonwealth may not have sufficient funds to service all principal and interest on its general obligation debt without significantly curtailing government operations”, according to the document.

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.

At Tuesday’s U.S. Senate hearing, some senators warned that Puerto Rico needs to take concrete steps to organize its finances. El funcionario pidió ayuda para Puerto Rico, fuertemente endeudado.

If it comes to that, they say, the island’s 3.5 million residents would come first and the island’s debt would have to be settled in what promises to be a long, expensive and chaotic series of lawsuits that in the end would harm both creditors and the residents of Puerto Rico. The governor has signed an executive order to divert revenue from some agencies to meet current debt payments and avoid a shutdown of basic services. Garcia Padilla unveiled the claw back on Tuesday during testimony at a U.S. Senate hearing where he said the island is running out of cash and will focus on providing essential services.

“We need Chapter 9”, Acosta said in reference to the bankruptcy chapter used by cities and other local governments, which is now unavailable to the commonwealth. Moreover, they argue, many investors would have eschewed investing in Puerto Rico if they knew the territory would retroactively be granted bankruptcy protection.

It does need Congress’ assistance to deal with its debt. One source familiar with the situation said negotiations had been going slowly and will now probably drag into next summer as the GDB payment buys some time.

Some of their legislative goals are to allow Puerto Rico to declare bankruptcy and restructure debt, as well as to provide more equitable federal reimbursements from Medicare taxes, Seda said.