The Puerto Rico Public Finance Corp. is defaulting on 99% of its due payment Monday.
The PRPFC is paying about $628,000 in interest, according to Government Development Bank for Puerto Rico president Melba Acosta Febo. About $58 million in principal and interest is due Monday.
The decision by the Puerto Rico government not to appropriate funds to pay the debt "reflects the serious concerns about the commonwealth's liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained," Acosta Febo said in a written statement.
Puerto Rico officials have said that the PRPFC default does not constitute a Puerto Rican government default.
The official statement for the 2011 series A PRPFC bonds stated on its first page, "The 2011 series A bonds will not constitute an obligation of the commonwealth or any of its public instrumentalities (other than the corporation), and neither the commonwealth nor any of its political subdivisions or public instrumentalities (other than the corporation) will be liable thereon."
Acosta Febo said, "PRPFC did make a partial payment of interest in respect of its outstanding bonds. The partial payment was made from funds remaining from prior legislative appropriations in respect of the outstanding promissory notes securing the PRPFC bonds. In accordance with the terms of these bonds, which stipulate that these obligations are payable solely from funds specifically appropriated by the Legislature, PRPFC applied these funds—totaling approximately $628,000—to the August 1 payment."
Immediately following Acosta Febo's statement, Moody's Investors Service vice president Emily Raimes said, "Payment of debt service on these bonds is subject to appropriation, and the lack of appropriation means there is not a legal requirement to pay the debt, nor any legal recourse for bondholders. This event is consistent with our belief that Puerto Rico does not have the resources to make all of its forthcoming debt payments. This is a first in what we believe will be broad defaults on commonwealth debt."
Despite the official statements' warnings, some investors and analysts will see the PRPFC default as an action of the Puerto Rico government.
Also on Monday afternoon, Puerto Rico announced that it has "temporarily suspended" setting aside money monthly for general obligation debt service payments. Government officials have assured that the commonwealth will nevertheless make the GO bond payments.
