Puerto Rico to Miss Largest Payment to Date

Mary Williams Walsh, New York Times, May 1, 2016

Gov. Alejandro García Padilla of Puerto Rico said Sunday that he had ordered a debt moratorium, blocking a $422 million payment due on Monday.

The missed payment is the biggest yet in a continuing series of defaults by the struggling United States territory, and a warning that Puerto Rico will probably default on even larger and more consequential payments due on July 1, unless Congress enacts rescue legislation before then.

On that date nearly $2 billion is due, roughly $800 million of which consists of general-obligation bonds that carry an explicit guarantee by the Puerto Rican Constitution. Missing a major payment on such debt would not only set off a wave of creditor lawsuits, but it could also cast a shadow over America’s $3.7 trillion municipal bond market, for decades an essential source of financing for public works.

“This was a painful decision,” the governor said in a televised speech on Sunday, in which he struck a nationalistic tone and said he had to invoke his emergency powers under Puerto Rican law because help from Washington was not forthcoming.

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Federal law bars Puerto Rico from restructuring under Chapter 9, the part of the bankruptcy code that insolvent cities and other local governments can use. Lawmakers in the House of Representatives, under the direction of Speaker Paul D. Ryan, have been trying to draft a special law to give Puerto Rico legal powers to abrogate debt, something normally available only in bankruptcy.

But the bill is contentious and important provisions are still being negotiated.

The governor said the process was too slow. In his speech he blamed unnamed “opponents of the people of Puerto Rico,” who, he said, “have unleashed a brutal campaign of racial discrimination and lies against us,” convincing some members of Congress that Puerto Rico needed austerity rather than debt relief.

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