Puerto Rico governor Alejandro Garcia Padilla is set to address the island's debt problem at a press conference on Wednesday.
- PUERTO RICO SAYS IT WILL DEFAULT ON SOME DEBT DUE JAN. 1
- PUERTO RICO TO MISS $1.4 MILLION DUE ON PFC BONDS DUE JAN. 1
- PUERTO RICO TO MISS $35.9 MILLION DUE ON PRIFA BONDS
- PUERTO RICO TO MAKE JAN. 1 GENERAL OBLIGATION DEBT PAYMENT
Nearly $1 billion comes due on Friday, some $330 million of which is GO debt. Because a full payment is next to impossible, Padilla must decide who gets paid and who doesn't. Live feed:
And the reaction in the monolines:
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Background
In what’s starting to feel a bit like the Greek saga that unfolded over the summer, Puerto Rico is facing another “D-Day” on January 1 when nearly $1 billion is due to creditors.
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For those unfamiliar with the story, the commonwealth is struggling to crawl from under a debt pile that sums to about $70 billion but has thus far been unable to wrench concessions from Congress on restructuring in bankruptcy.
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Earlier this month, the island struck a deal with the monolines that will let a previously agreed restructuring for around $8 billion in PREPA debt go ahead, and while some hope that could serve as a kind of template for the rest of Puerto Rico’s obligations, analysts and government officials alike think that’s unlikely given the complexity involved.
On December 1, Governor Alejandro Garcia Padilla used a revenue clawback mechanism in order to make a $354 million payment. The end-around effectively allowed Padilla to divert funds from other agencies that have issued bonds in order ensure the government could make good on its GO debt. A default on the GO portion (around $330 million) of what comes due on Friday would trigger a wave of messy litigation and is a situation Padilla wants to avoid at all costs.
One source with GO debt exposure who spoke to Reuters [9] said debtors usually advise creditors ahead of time when they plan to default, and Puerto Rico had not indicated a default to GO creditors.
But given the fact that Padilla indicated earlier this month that making the full payment at the first of January would be all but “impossible,” someone isn’t going to be getting their money.
Height Securities’ Daniel Hanson - who last month warned of social unrest if the government stops making payroll - says the island will likely miss payments on $35 million in Infrastructure Finance Authority (PRIFA) bonds, $1.4 million in PFC bonds, as well as possibly $91 million on bonds at its buildings authority (PBA).
For its part, Ambac (which insures Puerto Rico's debt) now says the revenue clawbacks the island used to make the December 1 payment are "illegal." According to Bloomberg, the insurer is now demanding taxes received in fiscal 2016 up to the statutorily required limit of $117m be moved to Sinking Fund and says as much as $94m in Rum Taxes securing PRIFA bonds were diverterd before governor’s order, a contention Padilla denied in today's presser.
Perhaps Padilla put it best earlier this month when he said the following: "...the vast number of creditors with differing interests across all issuing entities [will] result in negotiations that are lengthy, costly and chaotic."
