Puerto Rico plans to invoke a new law permitting the suspension of debt payments if the island fails to reach an agreement to defer $422 million in bond payments due May 1, Bloomberg News reported yesterday. The commonwealth, which is grappling with a $70 billion debt crisis, remains in talks with creditors, said Jesus Manuel Ortiz, a spokesman for Governor Alejandro Garcia Padilla. A default on the bonds issued by the Government Development Bank would be the largest yet by Puerto Rico, which has said that it has no choice but to renege on obligations because of its struggling economy and deteriorating finances. Garcia Padilla on April 6 signed the moratorium law allowing him to suspend principal and interest payments on a wide swath of debt, including the island’s general obligations. He has said that the U.S. territory can’t afford payments due in May and July. Read more.
In related news, Pacific Investment Management Co. said that the U.S. House bill that would establish a federal oversight board for Puerto Rico and give it powers to reduce the island’s $70 billion of debt would be a “satisfactory resolution” to the commonwealth’s worsening crisis, Bloomberg News reported yesterday. Pimco, which doesn’t own any of the territory’s securities, said that the legislation wouldn’t trigger higher borrowing costs for other municipal issuers, a concern raised by some Republicans in Congress. The legislation is pending in the House Natural Resources Committee, which canceled a planned vote this month so that it could address criticism from lawmakers of both parties. The bill has also won support from Nuveen Asset Management and holders of Puerto Rico’s sales tax–backed bonds, while hedge funds that own the commonwealth’s general obligations have opposed it. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
