Puerto Rico makes bond payment by redirecting revenue

There had been speculation that the US territory would default on all or part of $355 million in notes issued by its financing arm, the Government Development Bank, and due December 1. Failure to make the bond payment could complicate the island’s efforts to reach restructuring deals on its $72 billion of public debt that Garcia has said is unpayable.

Sen. Chuck Grassley, R-Iowa, chairman of the Senate Judiciary Committee, said the island’s ballooning debt is an indication of what he called “serious fiscal mismanagement”.

“Make no mistake, Puerto Rico’s liquidity position is severely constrained at this time despite the extraordinary measures the government has taken to improve it”, Febo said.

Garcia Padilla signed an order allowing Puerto Rico to begin redirecting certain funds in light of recently revised revenue estimates and its deteriorating liquidity situation, the island said. “Of course” creditors would sue, said one creditor-side source. Of the payment owed on Tuesday, $273 million is protected by Puerto Rico’s constitution – so-called general obligation, or GO, debt – so defaulting would likely trigger lawsuits.

Puerto Rico’s 8 percent General Obligation Bond rallied to trade at an average price of 74.9 cents on the dollar, with a yield dropping to 11.2 percent versus a yield of 11.8 percent on Monday, on news that it did not default on the GDB debt.

An imminent default “looms large”, Garcia Padilla said.

With 45 percent of its 3.5 million population in poverty, Puerto Rico is a meteorological paradise mired in economic purgatory.

Puerto Rico Justice Secretary Cesar Miranda acknowledged that some might view Puerto Rico’s move as a technical default since the government is diverting money meant for future bond payments. “The starting point is to identify the problem”.

More important, it wants Congress to change laws barring it from declaring bankruptcy, insisting it’s the only way out of the fiscal trap Puerto Rico finds itself in.

Blumenthal, a Democrat, spoke at the beginning of a hearing on Puerto Rico, which faces a debt payment Tuesday.