Puerto Rico to default on part of $1 billion in muni debt

He said there is no money to make a $400 million payment in May in Government Development Bank bonds.

What will be paid back is $330 million due in its general obligation debt.

Puerto Rico has run out of time and money and will default on some $37m of its debt repayments on 1 January, Governor Alejandro Padilla confirmed on Wednesday.

January 4 marks a deadline for the debt-stricken USA territory.

Agencies involved in the default include the Puerto Rico Infrastructure Financing Authority and the Puerto Rico Public Finance Corporation.

Puerto Rico has already signaled that some of the payment due will not be paid, opening the door to potential litigation with creditors.

Joseph Rosenblum, director of municipal credit research at AllianceBernstein, said the payment strategy only buys Puerto Rico some time.

The island has already defaulted on some of its roughly $70 billion in debt, which Garcia Padilla has said is not payable and requires restructuring.

The U.S. Commonwealth, suffering from a near decade-long recession with a 45 percent poverty rate and a shrinking tax base due to people leaving the island, first defaulted in August when it failed to make the full payment on its Public Finance Corp (PFC) bonds. The island is redirecting money from some of those bonds toward debt with better legal protections, the governor said.

While Puerto Rico is still pursuing access to a bankruptcy mechanism, U.S. House Speaker Paul Ryan, a Republican from Wisconsin, has pledged that the House will come up with “a responsible solution” for Puerto Rico’s debt problems next year.

Over half of that payment will be made by pulling revenues from other agencies on the island, the governor said.

There’s no “Happy New Year” for Puerto Rico.

Puerto Rico needs swift congressional action to create an orderly restructuring process, a Treasury spokesman said on Wednesday. The island’s economy has been hurt by the expiration of federal tax breaks that had lured industrial production to Puerto Rico, while the USA has Congress refused to authorize its agencies to file for bankruptcy protection. Its next test on GO debt is not until July, when it faces a about $1.9 billion payment.

Upgrades to the water infrastructure will be carried out by Puerto Rico’s Department of Natural and Environmental Resources, Department of Transportation and Public Works, and the Puerto Rico Highways and Transportation Authority, stated the release.

A GO default could be the most significant since Detroit defaulted on GO bonds in 2013.