Puerto Rico governor Alejandro Garcia Padilla has warned for weeks that the ailing island is out of cash, and would put its residents first if forced to choose between paying creditors and paying for basic services like health, education, and public safety.
Now, for the second time since August, a choice has been made: Puerto Rico will default on a portion of a roughly $1 billion dollar debt payment due on Jan. 1.
Garcia Padilla said today (Dec. 30) that the commonwealth will default on more than $37 million in debt obligations due to bondholders at the start of the new year, specifically $35.9 million in Puerto Rico Infrastructure Financing Authority debt and $1.4 million in Public Finance Corp. bonds.
The island will however pay $357 million in interest due on its general-obligation bonds, which, among the island’s issuers, provide the strongest legal protection to creditors and therefore place the government at greater risk in the event of default.
Puerto Rico has been struggling to climb out from underneath its $70 billion debt pile, which it’s currently seeking to restructure with creditors. Garcia Padilla has also lobbied the US Congress to allow the island, which is a US commonwealth, to file for bankruptcy, and called on the U.S. Senate to provide Puerto Rico with a viable restructuring plan. (Senate Republicans have since proposed a bill that would offer the island $3 billion in aid.)
In August, the commonwealth went into default for the first time in its history when it failed to fully pay $58 million in debt obligations due on Public Finance Corp. bonds, owned primarily by average Puerto Rican citizens through credit unions. Earlier this month, it nearly missed another multi-million dollar debt payment.