Puerto Rico will miss a major debt payment due to creditors Monday, registering the largest default to date for the fiscally struggling U.S. territory.
Gov. Alejandro Garcia Padilla announced on Sunday the "very difficult decision" to declare a moratorium on the $389 million debt service payment due to bondholders of the island's Government Development Bank, which acts as the island's primary fiscal agent and lender of last resort.
"We would have preferred to have had a legal framework to restructure our debts in an orderly manner," Garcia Padilla said in a televised address in Spanish. "But faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice. … I decided that essential services for the 3.5 million American citizens in Puerto Rico came first."
This will not be the first default for Puerto Rico. According to Moody's Investors Services, the government has failed to make about $143 million in debt obligation payments since its historic default in August on subject-to-appropriation bonds issued by the Public Finance Corporation.
The commonwealth will pay the approximately $22 million in interest due on the Government development Bank bonds, as well as the nearly $50 million owed to creditors on some other securities that have payments slated for Monday, according to a source familiar with the situation.
Late on Friday, the bank announced it was able to come to an agreement with credit unions that hold approximately $33 million of the bonds due Monday. Under the deal, these bondholders will swap existing securities with new debt that matures in next May.
Garcia Padilla reiterated his plea to Congress to give the commonwealth the legal tools necessary to address Puerto Rico's $70 billion debt pile and ensure the sustainability of the island.
"Puerto Rico needs Speaker Paul Ryan to exercise his leadership and honor his word. … We need this restructuring mechanism now," he said.
Puerto Rico's situation is unique as it is a territory of the United States and despite previously being legally afforded the rights to access bankruptcy laws, the commonwealth was inexplicably removed in 1984 from legislation that granted debt restructuring protections under U.S. Laws.
The governor closed his address by saying he will honor his commitment to continue to work with creditors to try to reach a consensual solution, but his number one priority has been and will remain the lives and safety of the people in Puerto Rico.