Puerto Rico is playing brinkmanship with creditors by threatening a default that could reverberate through financial markets and the refugee state of Florida, according to an editorial in today’s Wall Street Journal. Congress may need to save the island from itself, if only to minimize the collateral damage, according to the editorial. Puerto Rico Governor Alejandro Garcia Padilla on Wednesday signed legislation authorizing him to declare a moratorium on the commonwealth’s $72 billion debt. This would trigger a default as soon as May when a $422 million payment on Government Development Bank debt comes due. Puerto Rico and its public agencies owe another $2 billion in July. The moratorium upends negotiations with creditors and throws a wrench — perhaps deliberately — into Congressional deliberations over how to help the island manage the crisis, according to the editorial. In a better situation, Puerto Rico’s 18 public debt issuers, 20 some creditor committees and government unions would agree to a restructuring without federal intervention. But creditors possess competing claims, bond covenants conflict, and public agencies have intermingled funds. Puerto Rico appears unwilling to act in good faith when left to its own devices, according to the editorial. Read more.(Subscription required.)
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
