“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. In August, it paid only $628,000 of a $58 million payment due on its Public Finance Corp bonds.
Advertisement
Ahead of Puerto Rico’s scheduled payment of more than $350 million on its debt, there was widespread speculation that the US territory would default again.
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. Blumenthal, a Democrat, spoke at the beginning of a hearing on Puerto Rico, which faces a debt payment Tuesday. He asked lawmakers to enact legislation to give the territory more equitable treatment under federal programs and authorize Puerto Rico to restructure a meaningful portion of its debt.
“Pursuant to the executive order, certain available revenues that have been budgeted to pay debt service on the debt of certain public corporations may be redirected, pursuant to constitutional requirements, to pay ‘public debt, ‘” it added. Those investors will seek confirmation that the government did use the money for general obligations and not other expenses, Hanson said.
“The Government Development Bank will make an announcement in a few minutes or maybe hours about the payment, ” Garcia Padilla said to reporters after his testimony. The yield traded as low as 11.1 percent Tuesday. He admitted essentially that Puerto Rico is out of cash.
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”. Richard Blumenthal, D-Conn. “Congress can not tell Puerto Rico to drop dead financially”. It also anticipated that a default on the guaranteed debt could prompt legal action on behalf of general obligation bond creditors.
Moody’s said the ratings agency would “continue to view default as likely on future commonwealth debt payments”.
Advertisement
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.
