On Friday, Victor Suarez, Governor Alejandro Garcia Padilla’s chief of staff, told reporters “”The PFC [Public Finance Corporation Bond] payment will not be made this weekend,” as had been suggested to investors over recent weeks. “Tomorrow is Aug. 1 and we don’t have the money,” Reuters reports.
Other debt obligations are being managed. Government Development Bank President Melba Acosta, in a statement issued Friday, indicated a $169 million debt service payment would happen. The $58 million missed PFC payment has lesser consequences. First Southern Securities partner Ben Eiler told Reuters this week, “I bought my (PFC) bonds with the anticipation of them defaulting…They’re going to restructure in some form or fashion, and I believe that restructure is going to be higher than that level.”
Suarez indicated the government has enough gash to get through November without additional changes to bring in additional funds. Suarez also denied the missed payment means default under the terms of the Bond documents.
The credit rating agency Standard & Poor’s has a different viewpoint, even though though “bondholders have very limited remedies”, as does Moody’s. Reuter’s quotes Timothy Blake of Moody’s as saying “It [constitutes] the first failure by the government to pay on a debt to public investors and indicates the weakness of the government’s ability and willingness to pay.”
The White House said on Friday not to expect any type of bailout.
International Business Times reports that there are 18 different bonds in Puerto Rico, from guaranteed general obligation bonds to those issued by public corporation infrastructure bonds. There is a general impression that the Territory’s island debt had an implicit backstop from the US Government, not unlike the Mortgage Giants Freddie Mac and Fannie Mae leading up to the financial crisis starting in 2007. “[I]nvestors have been making the presumption that Puerto Rico would somehow find support financially from U.S. Congress, ” Jim Colby of Van Eck Global told the Times.
