Puerto Rico to default on some debts, will pay GO debt

Wed Dec 30, 2015 5:01pm EST
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By Nick Brown

SAN JUAN (Reuters) - Puerto Rico will default for the second time in five months, but will pay the bulk of $1 billion due on Jan. 4, including its most senior debt, Governor Alejandro Garcia Padilla said on Wednesday.

The Caribbean island's biggest payment, $328.7 million in general obligation debt, will be paid, the governor told reporters at a press conference in San Juan. More than half of that payment was made by taking revenues from other commonwealth agencies, he added.

A default on general obligation (GO) debt would have been seen as a more serious stumble because those bonds have the strongest legal protections of any of the island's obligations.

However, it also keeps alive the drama surrounding its deteriorating finances and $70 billion debt load as investors wait for the next shoe to drop.

The default opens the door to potential litigation from affected creditors, while the island must now turn its focus to trying to achieve a consensual debt restructuring with GO holders before its next big payment of $1.9 billion is due in July.

The governor said he is meeting with creditors in early January, though he did not give a specific date.

When asked about a shutdown of key government services, Garcia Padilla told reporters at a press conference: "We have to do all we can to avoid that situation."

The U.S. Commonwealth, suffering from a near decade-long recession with a 45 percent poverty rate and a shrinking tax base due to people leaving the island, first defaulted in August when it failed to make the full payment on its Public Finance Corp (PFC) bonds.   Continued...

Puerto Rico's Governor Alejandro Garcia Padilla delivers his state of the Commonwealth address at the Capitol building in San Juan, Puerto Rico April 30, 2015. REUTERS/Alvin Baez