Puerto Rico risks creditor ire by hijacking money earmarked for bond payments
By Nick Brown and Megan Davies
SAN JUAN/NEW YORK Dec 6 (Reuters) - Puerto Rico may have dodged a bullet when it avoided default last week, but its decision to commandeer revenue that was supposed to meet future debt payments will invite creditor pushback and possibly lawsuits.
Creditors have long criticized Puerto Rico's spending habits, and may have the ammunition to bring those complaints to court now that the Caribbean island plans to divert funds to cover constitutionally-guaranteed debt and essential government services.
The U.S. territory, which owes creditors $72 billion, last Tuesday avoided defaulting on a $355 million payment. But it owes another such payment on Jan. 1, which can only be made if revenue that was earmarked to repay and service other debt owed by various government agencies is repurposed, Governor Alejandro Garcia Padilla said.
The island said it also needs to use that revenue to keep some key services operating, though it has not specified which ones. Many creditors said these so-called clawbacks are premature, and question whether they will be used on truly essential services.
The government hasn't been specific about the revenue that will be grabbed. Bonds vulnerable to the switch include $4.6 billion at Puerto Rico's highway authority (HTA), $1.9 billion at its infrastructure authority (PRIFA), and additional debt at a public transportation authority and convention center authority, according to an executive order signed by Garcia Padilla.
One creditor source with exposure at the affected agencies said a lawsuit was possible, insisting that clawbacks were being misused under Puerto Rico's laws and constitution. "They haven't met the requirements to permit a clawback under the constitution ... you can assume we're looking at all the different avenues," said the source.
Two other sources said that, while lawsuits are an option, they were more inclined to wait to preserve their negotiating ability.
"There is a very high probability of protracted litigation," said Ted Hampton, vice president at Moody's Investors Service. "It's a bit like a race or some kind of competition - people are waiting to jump in when the whistle blows." Continuación...