“Let us be clear: We have no cash left”, he said. A default could trigger lawsuits, further spook investors and undermine the island’s efforts to climb out of $72 billion in debt. Puerto Rico’s public utilities are heavily indebted and Alejandro Garcia Padilla’s administration is pushing for their right for to file for bankruptcy. They’re middle-class Americans who probably knew little about Puerto Rico’s finances.
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The payment on bonds issued by the GDB is crucial as Puerto Rico tries to stretch its liquidity into 2016 to provide more time to restructure debt. The island’s justice secretary has said some might regard the move as a technical default since officials are diverting money slated for future debt payments.
“The imminence of a default when presented with the alternative between paying creditors and providing essential government services looms large”, Garcia Padilla said in Tuesday’ morning’s Senate hearing, according to Reuters.
The Tuesday payment also fell under a category of debt that must be paid according to the island’s constitution, USA Today reported.
Bondholders of certain highway bonds and other debt subject to the revenue redistribution don’t have a lot of recourse because bond documents state that Puerto Rico can take those collections to repay general obligations, said Daniel Hanson, an analyst at Height Securities, a Washington-based broker dealer.
“We are reduced to the role of supplicant, pleading for equal treatment, or at least more equitable treatment”, Pierluisi said.
The payment “narrowly avoided a complete default that could have hobbled its government”, Democratic Sen. Statehood supporters say the economic crisis shows why Puerto Rico must become the 51st USA state; independence proponents say it supports their cause. He said no bill is imminent to assist Puerto Rico given that the commonwealth hasn’t filed audited financial statements yet for fiscal 2014, which ended June 30, 2014.
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The bank president added that Puerto Rico intends to honor its debts “to the extent possible without interrupting essential public services”.
