The U.S. island territory did not make nearly $370 million of the payment that was due, the third and largest since 2015. Gov. Alejandro Garcia Padilla said a much more significant default could occur July 1 if Congress doesn’t restore the government’s ability to restructure debt under Chapter 9.
Garcia blamed lobbyists for hedge funds, which he blasted as “vultures,” for the fact that Congress left on its recess last week with a restructuring bill stalled in committee.
“Our worst enemy at the moment is politics,” he told reporters at a news conference.
The government on Sunday ordered a suspension of payments on debt owed by the island’s Government Development Bank, a default that will likely prompt lawsuits from creditors and could be a prelude to a deadline to a much larger payment due July 1.
The governor said Puerto Rico can’t pay the bonds without cutting essential services.
Island officials spent the weekend trying to negotiate a settlement that would have avoided the default, but apparently came up short. The development comes as Congress has so far been unable to pass a debt restructuring bill for Puerto Rico.
“Let me be very clear, this was a painful decision,” Garcia said in a speech Sunday. “We would have preferred to have had a legal framework to restructure our debts in an orderly manner.”
Experts say Monday’s default itself is unlikely to have a major effect on the broader bond market. Most bond funds have already sold their Puerto Rican debt, though a few still hold parts of the commonwealth’s debts and could be hurt.
Puerto Rico’s Government Development Bank had $422 million in payments due Monday. Puerto Rico will pay $22 million interest, and it reached a deal with island credit unions on Friday to restructure about $30 million, leaving it short $370 million.
The administration also will be paying about $50 million in other debt payments due Monday owed by various other territorial agencies.
Nearly all the bonds are held by a variety of U.S. hedge funds and mutual funds.
Garcia said Puerto Rico’s government could not make the payment without sacrificing basic necessities for the island’s 3.5 million residents, including keeping schools and public hospitals open.
Comments are not available on this story. Read more about why we allow commenting on some stories and not on others.
We believe it's important to offer commenting on certain stories as a benefit to our readers. At its best, our comments sections can be a productive platform for readers to engage with our journalism, offer thoughts on coverage and issues, and drive conversation in a respectful, solutions-based way. It's a form of open discourse that can be useful to our community, public officials, journalists and others.
We do not enable comments on everything — exceptions include most crime stories, and coverage involving personal tragedy or sensitive issues that invite personal attacks instead of thoughtful discussion.
You can read more here about our commenting policy and terms of use. More information is also found on our FAQs.
Show less