Washington (AFP) – Puerto Rico’s governor called for Congress to help it address its heavy debts, saying the island would default on some payments Monday as it no longer has the money to pay.
Speaking on CNBC television, Alejandro Garcia Padilla, governor of the US island territory struggling with $70 billion in debt, defended his decision last week to miss about $37 million in payments at the deadline at midnight Monday.
While the territory will still pay most of the total $1 billion due to creditors late Monday, including the largest chunk on its direct government-issued bonds, the debt issued by two small state-controlled entities will fall into arrears, he confirmed.
“We ran out of cash,” he said. “It’s very simple. We don’t have money to pay.”
Garcia Padilla said last week that the government was already diverting money committed for some bond payments to ensure it could pay salaries and pensions and its senior state debt.
He said that diversion also amounted to defaulting on its obligations, and that he was expecting the territory’s government to be hit with litigation after the payment deadline passes late Monday.
“It will be very costly, that litigation,” he told CNBC.
“It will cost a lot for the commonwealth. It will cost a lot for our creditors, and every dollar that I need to use to pay lawsuit lawyers will be a dollar that I will not have available to pay creditors.”
Garcia Padilla last week blasted “hedge and vulture fund” creditors for blocking the restructuring of the island’s debt, and says he needs legislation proposed in Congress that would allow the Caribbean island to declare bankruptcy and force a debt restructuring.
“We do not want a bailout, we just want the tools to solve this crisis,” he told CNBC Monday.
Meanwhile credit rating agency Standard & Poor’s said Monday that it would not cut its rating for Puerto Rico based on the expected payment defaults.
The rating had been lowered in September to CC, with a negative outlook, indicating strong expectations of a default.
But S&P said Monday that Puerto Rico had made strong efforts to ensure it pays its direct “general obligation” (GO) debt and to negotiate with creditors, so that the very small payments to be missed would not merit a downgrade.
The government’s selective move “shows Puerto Rico’s reluctance to default on GO debt where bondholders hold a particularly strong legal claim.”
The move instead “could represent a shot across the bow to bondholders in ongoing restructuring talks, as well as serve as a signal to Congress that help is needed.”