If anything stands as a symbol of how Puerto Rico ended up mired in billions of dollars of debt, it is an oceanside golf resort going to seed some 15 miles east of San Juan, the New York Times DealBook reported today. Known until this month as the Trump International Golf Club Puerto Rico, it was built as a for-profit venture, subsidized by federal taxpayers and backed by the island’s powerful Government Development Bank, which sold to investors and guaranteed repayment of more than $50 million in tax-exempt bonds. The resort went bankrupt this year and has since been sold, but the Government Development Bank is still making payments on the bonds that are outstanding; the last one is due in 2034. The deal and how it came to be provide telling insight into the workings of the Government Development Bank, which is responsible for managing the $72 billion in debt that the island has amassed — and says it cannot hope to repay. Although it has so far defaulted on only a tiny portion of the debt, the next test comes on Tuesday, when the bank is scheduled to make a $354 million bond payment. It will not yet say whether it can or should meet the deadline. Deals like the golf resort are not the only reason the Government Development Bank has found itself at the center of Puerto Rico’s financial jam. But it is an example of how the bank helped borrow on behalf of public and private enterprises over the years, then ended up with much of the debt, even when deals failed to fulfill their original purpose: the development of Puerto Rico. Read more.
In related news, the Senate Judiciary Committee will hold a hearing tomorrow at 10 a.m. ET titled “Puerto Rico’s Fiscal Problems: Examining the Source and Exploring the Solution.” To view the hearing details, including the witness list, please click here.
