Puerto Rico's Debt Crisis, May Lead to US Hedge Fund Tensions
19 October 2018 14:13 WIB
TEMPO.CO, San Juan - Puerto Rico's government it would not make a $58 million bond payment due on the weekend and warned that the general fund will run out of liquidity by November if no action is taken, the Associated Press reported on Friday, July 31, 2015.
Gubernatorial Chief of Staff Victor Suarez said at a news conference on Friday that the island's Public Finance Corporation could not meet the payment due Saturday.
"We don't have the money," he said, adding that the government still hopes to reach an agreement with creditors on renegotiating its debts.
Gov. Alejandro Garcia Padilla warned several weeks ago that the government and state agencies cannot repay the $72 billion in public debt that hangs over the U.S. territory, which is struggling with a nearly decade-long economic slump.
Puerto Rican officials contend that failure to make Saturday's payment will not constitute a default because it involves moral obligation bonds, which means there is no legal requirement to repay them.
Last month, Padilla said Puerto Rico’s debt is “not payable,”and the commonwealth has been in heated talks with powerful US investors about restructuring its obligations.
But it appears that some debts are more payable than others, which could lead to tension between local bondholders and US hedge funds and mutual funds.
“Puerto Rico is strategically choosing the PFC bonds for a default because they have almost no legal protection to force payment,” said Puerto Rican bond expert Cate Long.
“They want to start a bondholder war,” she added.
On the other hand, powerful US investors, including at least 36 hedge funds and some big mutual funds, are likely to get paid.
One group of US hedge funds owns bonds issued by the Government Development Bank, which make up 47 percent of the island’s debt.
Victor Suarez, the governor’s chief of staff, said Puerto Rico will do “everything possible” to make a payment for the GDB, which is scheduled to make a $169.6 million interest payment on Aug. 1, according to Reuters.
REUTERS | AP
