But the territory still owes $72 billion to lenders and bondholders. The island’s government already partially defaulted on a $58 million payment due in August from a subsidiary of the Government Development Bank.
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Hanson says Puerto Rico will meet constitutionally backed general obligation bond payments through the current fiscal year, but that creditors in bonds linked to Prepa, the island’s power authority, and the HTA, as well as other bonds, will likely lose full payment.
On Tuesday morning, Sen.
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.
“You’re really not going to find any similar entity in any state”, said Melba Acosta Febo, the president and chairwoman of the bank, who is now counting on congressional intervention to help Puerto Rico climb out of its debt crisis.
Puerto Rico Gov, Alejandro Javier Garcia Padilla testifies on Capitol Hill in Washington, Tuesday, Dec. 1, 2015, before the Senate Judiciary Committee hearing on Puerto Rico’s fiscal problems.
According to the Administrative Office of the U.S. Courts, Chapter 9 bankruptcy provides “a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts”.
“Let us be clear, we have no cash left”, the governor told the Senate committee. “This is a distress call”. A missed payment on those securities would have been the first default on direct debt, sparking legal suits and upending negotiations with creditors. Investors around the world, including a series of mutual funds held by many Americans, anxious that a default would lead to an economic collapse.
“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.
He warned that, even with Tuesday’s payment, the government is now being forced to choose between essential services for citizens and debt repayment. “They are a mark of tragedy on an island that deserves better”.
Puerto Rico’s 8 percent General Obligation Bond rallied to trade at an average price of 75 cents on the dollar, with a yield dropping to 11.168 percent versus a yield of 11.809 percent on Monday. Richard Blumenthal of CT said today during a Senate Judiciary Committee hearing.
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“It’s all according to what he’s got cash on hand”, said Matt Dalton, chief executive officer of Rye Brook, New York-based Belle Haven Investments, which oversees $3.4 billion of munis, said about Garcia Padilla.
