Municipal Bonds

Puerto Rico's PFC did not transfer funds for bond payment: Filing

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Puerto Rico's Public Finance Corp. (PFC) failed to transfer funds to pay the principal and interest on its bonds, according to the island's bank and a filing on Wednesday, highlighting cash problems as the island tries to restructure its debt.

The transfer of $93.7 million was for a debt service payment due Aug. 1 by PFC, part of the island's Government Development Bank.

"I think this puts other bond payments in jeopardy," said John Miller, co-head of fixed income for Nuveen Assset Management. "All classes of bonds, as the government has said, are in greater jeopardy of non-payment in the near term."

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Puerto Rico's Governor Alejandro Garcia Padilla dropped a bombshell on creditors in June by saying the island needed to restructure debts to solve its fiscal problems, while an adviser to the island said the U.S. territory would soon run out of cash.

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The PFC, which provides financing to the island's agencies and is a subsidiary of Puerto Rico's Government Development Bank (GDB), said in a filing it had requested the funds be appropriated in the 2016 budget but they were not included in the budget approved June 30.

"In accordance with the terms of these bonds, the transfer was not made due to the non-appropriation of funds," said GDB head Melba Acosta in a statement.

A source familiar with the situation said no default would be triggered by not moving the funds, as the bonds only require that funds are transferred and paid if they are appropriated.

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Moody's analyst Ted Hampton said he had not yet made a determination as to whether it constituted a default.

"Whether this missed payment by itself constitutes a default or not, it does show how pressures on Puerto Rico's liquidity and budgetary process are intensifying," Hampton said in an email.

Hampton said that the GDB had indicated that a supplemental request has been made to the legislature to provide an appropriation for the August 1 payment, "which could avert an actual default on the debt service payment."

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