• Governor plans to invoke law passed in April if no deal cut
  • Negotiations contining with bondholders owed money on May 1

Puerto Rico plans to invoke a new law permitting the suspension of debt payments if the island fails to reach an agreement to defer $422 million in bond payments due May 1, a spokesman for the governor said.

The commonwealth, which is grappling with a $70 billion debt crisis, remains in talks with creditors, Jesus Manual Ortiz, a spokesman for Governor Alejandro Garcia Padilla, said during a news conference in San Juan.

A default on the bonds issued by the Government Development Bank would be the largest yet by Puerto Rico, which has said it has no choice but to renege on obligations because of its struggling economy and deteriorating finances. Garcia Padilla on April 6 signed the moratorium law allowing him to suspend principal and interest payments on a wide swath of debt, including the island’s general obligations. He has said that the U.S. territory can’t afford payments due in May and July.

Moody’s Investors Service said last week that it expects Puerto Rico to default on the May payment because of the government’s lack of funds.

Congress has been slow to act on legislation to stem the swiftly escalating crisis in Puerto Rico by giving it legal ability to restructure its debt, a step that could prod bondholders to accept less than they’re owed. On Tuesday, House Majority Leader Kevin McCarthy, the chamber’s No. 2 Republican, said he’s “hopeful” that the House will pass it before July obligations are due.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE