Governor Alejandro Garcia Padilla warned that Puerto Rico bond investors face a cascade of defaults starting in July unless Congress passes legislation that facilitates a restructuring of the commonwealth’s debt.
The exhortation made Monday in San Juan came a day after Garcia Padilla announced a moratorium on the payment of $400 million in Government Development Bank debt that matured Sunday. The governor said he was choosing to focus on providing essential services as the commonwealth’s financial crisis worsens, rather then to pay creditors. The default is the biggest yet by the island.
The missed payment opens the door to larger and more consequential defaults on general-obligation bonds, which are protected by the island’s constitution. Puerto Rico and its agencies owe $2 billion on July 1, including $805 million in GOs. It also could affect slow-moving efforts by U.S. lawmakers to resolve the biggest crisis ever in the municipal bond market. |