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Puerto Rico Staves Off Default but Dark Clouds Remain

Puerto Rico manages to avoid default.

GettyImages-479060268
GettyImages-479060268

Puerto Rico has avoided default on its debt -- for now.

Puerto Rico has avoided default on its debt — for now.

On Tuesday morning, Sen. Richard Blumenthal, a Democrat from Connecticut, said the U.S. island commonwealth was able to avoid complete default on more than $350 million in bond payments that were due Dec. 1. Earlier this year, Gov. Alejandro García Padilla admitted Puerto Rico would be unable to pay some $72 billion it owes to bondholders. To make Tuesday’s payment, the government in San Juan had to take revenue from public agencies, including its highway authority, HTA, and its infrastructure authority, PRIFA.

The payment of $355 million to stave off a default was unexpected, and according to García Padilla, puts San Juan in a desperate situation. “Starting today, the commonwealth of Puerto Rico will have to claw back revenues pledged to certain bonds issued in order to maintain essential public services,” he told the Senate Judiciary Committee on Tuesday. “We have taken this difficult step in the hope that Congress will act soon.”

And Puerto Rico’s victory might be short lived. On Jan. 1, it has to pay approximately $1 billion in obligations, money the island doesn’t have. Puerto Rico defaulted on its debt for the first time in August.

“Make no mistake, Puerto Rico’s liquidity position is severely constrained at this time despite the extraordinary measures the government has taken to improve it,” Melba Acosta-Febo, president of the Government Development Bank for Puerto Rico, said in a statement Tuesday.

The Senate Judiciary Committee met Tuesday to discuss whether Puerto Rico should receive Chapter 9 bankruptcy protection, something U.S. municipalities are eligible for. Because it is a U.S. commonwealth, Puerto Rico is not.

Both the House and the Senate are considering bills that would grant San Juan bankruptcy cover. Neither bill has gained momentum in the months since García Padilla admitted the horrible state of Puerto Rican finances earlier this year.  

Photo credit: Joe Raedle/Getty Images

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