Puerto Rico has lurched one step closer to default, saying one of its agencies failed to transfer cash to a trustee to cover an Aug. 1 debt payment because the legislature didn't appropriate the funds.
It's unclear whether the Public Finance Corp. will pay $36.3 million of bonds maturing that day. If it doesn't, that would mark the first time Puerto Rico has defaulted on a debt payment and would come as the commonwealth seeks to negotiate with creditors to restructure $72 billion of obligations.
The missed transfer underscores the fiscal squeeze on the U.S. commonwealth, which is pushing for Congress to allow some of its public corporations to file for Chapter 9 bankruptcy protection.
"This payment may not be made and will probably lead to the government trying to exchange this paper," Luis Fortuno, Puerto Rico's governor from 2009 through 2012, said during a telephone interview. "I don't think this, in and by itself, is enough to cause Congress to act on Chapter 9. There is a lot of talks about some strings attached to Chapter 9, although it's not clear exactly what that would be."
The Public Finance Corp. owes about $1 billion of debt repaid through legislative appropriation, according to the Government Development Bank, which works on the island's debt sales.
"In accordance with the terms of these bonds, the transfer was not made due to the non-appropriation of funds," Melba Acosta, president of the GDB, said Wednesday.
Last month, lawmakers included about $300 million in the current budget to repay GDB debt. The bank may be able to use the money to pay bondholders next month, though it would need legislative approval to do so. Puerto Rico's Legislative Assembly is out of session until mid-August.
Key Democrats including U.S. Sen. Chuck Schumer, of New York, are backing legislation that would allow Puerto Rico's public corporations to file for Chapter 9, just as U.S. cities can. A bill to do so has stalled for lack of GOP support.