OppenheimerFunds Inc. and Franklin Advisers Inc. said Puerto Rico is required to make a full payment on Public Finance Corp. bonds after the agency defaulted this week.
The corporation paid just $628,000 of a $58 million debt-service payment due Monday because the legislature failed to appropriate the funds. The two firms, which hold some of the defaulted debt, said in a letter to Puerto Rico officials released Thursday that the commonwealth is obligated to pay investors.
The missed payment was the first default by Puerto Rico, which is struggling with $72 billion of debt that Governor Alejandro Garcia Padilla says it can’t afford.
“The path that the current administration has chosen will steer Puerto Rico towards litigation and create further deterioration in the capital markets’ trust in Puerto Rico, potentially leading to years of economic turmoil for the people of Puerto Rico,” the firms wrote in a letter to Melba Acosta, president of the Government Development Bank and Juan Zaragoza, treasury secretary.
The missed payment came just weeks before Puerto Rico officials are set to release a proposal to restructure the island’s debts. Puerto Rico’s bond prices have slipped amid speculation over how much of the island’s debt will be paid on time and in full.
The commonwealth doesn’t guarantee repayment of the Finance Corporation debt, nor are the bonds secured by dedicated revenue. Faced with a budget shortfall, lawmakers declined to provide enough money to cover interest and principal on the securities.
“We are in receipt of the letter and it is currently under review,” Barbara Morgan, who represents the development bank in New York at public relations company SKDKnickerbocker, said in an e-mail.
OppenheimerFunds has about $4.5 billion of Puerto Rico debt while Franklin holds about $2.3 billion, according to Morningstar Inc.
Finance Corporation bonds maturing August 2031 traded Thursday at an average price of 9 cents on the dollar, down from 40 cents on June 26, before the governor began pushing to restructure the island’s debt.
Link to Statement:Link