Puerto Rico still seen defaulting on debt even with rescue law
By Daniel Bases
NEW YORK, June 29 (Reuters) - Investors in Puerto Rico's debt-burdened economy still face risks of default on some of the island's $70 billion in debt even after the U.S. Congress on Wednesday created a powerful federal oversight board to manage credit restructurings.
U.S. President Barack Obama says he will quickly sign the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) before the U.S. territory faces a possible default on July 1 on $1.9 billion worth of debt payments.
While the government of Puerto Rico says it cannot honor all of its debts, and will likely default for a fourth time in the last year on some of its bonds, some creditors could get their payments via insurers or reserve funds.
"Regardless of the creation of the oversight board, the missed payments on July 1 will constitute defaults," said Ted Hampton, senior credit officer at Moody's Investors Service.
The July 1st payment includes roughly $780 million worth of General Obligation (GO) bonds, its most senior credit that is supposed to be paid out before all others.
"I expect they will not cover all of the GO payment. That would be their first GO default in all of this, which is one reason why many people involved at the U.S. Treasury, in Congress, in the government of Puerto Rico saw a lot of urgency in enacting PROMESA before July 1," Hampton said.
According to Hampton, Puerto Rico has already missed approximately $562 million worth of debt payments through June 30th.
PROMESA provides the market with more clarity and lowers the chances of a chaotic legal fight by providing a stay, or halt, to any creditor litigation brought against the Puerto Rican government and its debt issuing agencies that is retroactive to December. Continuación...