Moody's Investors Service issued a short report stating that Puerto Rico (rated Caa3/negative outlook) is likely to default on some of its Dec. 1 debt service payments as its liquidity pressure grows. The primary payment likely to default is the Government Development Bank (Ca/negative), which has a $354.7 million obligation in notes due on that date.
Of the $354.7 million, $273.3 million are backed by the commonwealth's general obligation guarantee, with the remaining $81.4 million not backed by the same constitutional protection as the GO-backed portion. Moody's said the GDB has less incentive to make the latter part of the full payment. However, given Puerto Rico's severe and growing liquidity challenges, the commonwealth could also default on the GO-backed credit as well, which could trigger legal action on behalf of GO creditors, the analysts said in the Nov 11 report.
A default on either security would be consistent with Moody's 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. As these pressures escalate, Puerto Rico's ability to meet its obligations to bondholders is decreasing. The commonwealth continues to operate with extremely limited internal liquidity and no access to external sources of financing. Puerto Rico's Nov. 6 Financial Information and Operating Data report stated the GDB's cash resources "may be fully depleted by the end of calendar year 2015."
