- Garcia Padilla says officials will make final debt decision
- Government Development Bank faces $354 million Dec. 1 payment
Puerto Rico hasn’t decided whether to skip $354 million in bond payments due Tuesday, a move that would escalate a standoff with bondholders by pushing the commonwealth into default on debt directly guaranteed by the island for the first time.
“We are still in negotiations with some creditors and between today and tomorrow we will make the final decision as to whether or not and which payments will be made,” Governor Alejandro Garcia Padilla said during a press conference in San Juan. The commonwealth has until midnight Tuesday to make the payments.
The payment includes $267 million of Government Development Bank bonds that are guaranteed by the commonwealth, which has said it will make providing essential services its highest priority. The bank lends to the government and its agencies. The GDB bonds, backed by Puerto Rico, are insured by MBIA Inc.’s National Public Finance Guarantee Corp.
Puerto Rico and its agencies owe $70 billion after years of borrowing to fill budget gaps. The island’s economy has struggled to grow since 2006. The commonwealth is negotiating with bondholders to reduce its debt load by asking investors to accept losses through a debt exchange. The administration has said for months that its first priority is to pay for essential services on the island.
“It’s just a complete waiting game, at this point,” said Daniel Solender, who oversees about $17 billion as head of municipal debt at Lord Abbett & Co. in Jersey City, New Jersey, and holds GDB bonds maturing Tuesday. “There’s no indication either way.”
Garcia Padilla’s comments on the debt payment come as he’s set to testify Tuesday during a U.S. Senate Judiciary Committee hearing on Puerto Rico’s financial crisis. Pedro Pierluisi, Puerto Rico’s non-voting representative in Congress, Richard Ravitch, former Lieutenant Governor of New York, Richard Carrion, chief executive officer of Popular Inc., the island’s largest bank, and Stephen Spencer, managing director at Houlihan Lokey, adviser to bondholders of Puerto Rico Electric Power Authority debt, are also set to speak before the committee.
Uninsured GDB bonds maturing Tuesday last traded Nov. 19 at an average 44.1 cents on the dollar, down from an average 93 cents at the start of the year, data compiled by Bloomberg show. Insured GDB bonds that are guaranteed by Puerto Rico last changed hands Nov. 25 at 100 cents on the dollar.
A missed GDB payment may thwart agreements between the power authority, the island’s main supplier of electricity, and its creditors on how to reduce the utility’s $8.2 billion. Prepa, as the agency is known, has been negotiating with bond-insurance companies, including National, on a potential debt exchange after some bondholders agreed to a 15 percent loss. The insurers may be reluctant to accept concessions after making investors whole on $267 million of GDB debt.
“We continue to work with Prepa, local government officials and other creditors toward a consensual solution that will address Puerto Rico’s significant fiscal and operational difficulties while respecting the rights of its creditors,” Bill Fallon, National’s chief executive officer, said in a Nov. 4 statement.
Greg Diamond, a spokesman for MBIA, didn’t have an immediate comment beyond the Nov. 4 statement.
MBIA shares were little changed Monday at $6.58 at 12:21 p.m. in New York. They traded as high as $9.81 this year on May 18, Bloomberg data show.