Puerto Rico Likely to Default on Some GDB Debt, Moody's Says

  • Government Development Bank owes $354 million on Dec. 1
  • Commonwealth guarantees portion of Development Bank debt

Puerto Rico is likely to default on at least a portion of Government Development Bank bond payments due Dec. 1 with the commonwealth’s cash crunch worsening, according to Moody’s Investors Service.

The GDB, which lends to the island and its localities, faces a $354 million principal and interest payment at the start of the month, just as the bank projects it may run out of available cash, according to Puerto Rico’s Nov. 6 financial report. The commonwealth expects to post a negative cash balance this month and next.

A default “would be consistent with our expectation that the commonwealth will be forced to miss debt service payments in favor of providing essential government services because of its increasingly weak liquidity position,” Genevieve Nolan, a Moody’s analyst, wrote in a Nov. 11 report.

The Dec. 1 payment includes $267 million of bonds guaranteed by Puerto Rico’s general-obligation pledge and insured by National Public Finance Guarantee Corp. If the commonwealth were to miss repayment on this security, it would be the first default on the island’s direct debt.

“The critical date is December 1, and we are evaluating alternatives,” Melba Acosta, president of the GDB, said before a Puerto Rico House committee on Tuesday.

Such a default “would likely trigger legal action from creditors, commencing a potentially drawn-out process absent swift federal intervention,” Nolan wrote in the report. That may place greater pressure on the federal government to intervene in some way, Nolan wrote.

Moody’s has a Caa3 rating on Puerto Rico’s debt, its third lowest grade. The credit-rating company said in July that the probability of a default by Puerto Rico was approaching 100 percent.

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