SAN JUAN, Jan 5 (Reuters) - Puerto Rico’s latest default meant a $10.3 million hit for Ambac Financial, which insures some of the debt the island’s infrastructure authority PRIFA failed to pay on Monday.
Ambac had exposure to $10.3 million of PRIFA debt due on Monday, according to a Nov. 30 company report. An Ambac spokeswoman on Tuesday confirmed the insurer paid the full amount.
PRIFA owed a roughly $36 million payment on Monday but, according to a public filing by the trustee for the PRIFA bonds, failed to transfer funds to make the payment.
The move was expected after Puerto Rico’s Governor Alejandro Garcia Padilla announced last week that PRIFA would miss the payment. The strategic defaults are meant to help Puerto Rico combat an ongoing $70 billion debt crisis.
The trustee paid bondholders through a combination of cash on hand and payouts from Ambac, the filing said.
On Tuesday, Standard & Poor’s Ratings Services downgraded the PRIFA bonds to ‘D’, signifying default, from ‘CC’.
Ambac insures a face value of more than $500 million of PRIFA debt, according to its public filings. In December, Garcia Padilla said he would begin redirecting revenues earmarked to pay debt at PRIFA and other agencies, in order to pay Puerto Rico’s public debt, backed by its constitution.
Last week, Garcia Padilla said he had clawed back a total of $163 million from those agencies to pay about $329 million of public debt. While some of those agencies still had reserves to pay their own debt, PRIFA did not, leading to its default.
Puerto Rico’s Public Finance Corp. is also expected to default on a roughly $1.4 million debt payment that was due on Monday.
Last month, Ambac and Financial Guaranty Insurance Co penned a letter to Garcia Padilla challenging the legality of the clawbacks, and some analysts expect insurers or bondholders to sue Puerto Rico in the coming days or weeks. (Reporting by Nick Brown; Editing by Andrew Hay)