Puerto Rico says it will default on Monday

RSS Feed

Puerto Rico says it will default on Monday

May 2nd, 2016

Awake Goy

In a television address made Sunday, Puerto Rico’s governor Alejandro Garcia Padilla said the island’s Government Development Bank (GDB) will not make a $422 million payment due to its creditors by the end of business on Monday, according to Bloomberg.

A Reuters report ahead of Padilla’s address released on Sunday evening said the GDB was, “expected to skip at least the principal portion of its payment to hedge funds, credit unions and other bondholders.”

Like many financially distressed governments around the globe — think Greece, for example — Puerto Rico has been faced with demands from creditors and their consultants that the island undertake drastic spending cuts in order to create surpluses large enough to meet debt obligations.

The Padilla government has resisted these proposals.

And so Padilla’s announcement on Sunday, while not entirely unexpected, does reinforce the position from which the island will continue negotiations with its creditors over this specific debt. ZeroHedge reported Sunday that the price of the bonds on which Padilla said Puerto Rico will default had plummeted to 20 cents on the dollar.

In the financial world, Puerto Rico’s distress does not come as a great shock, and many hedge funds have made considerable bets that the island will eventually reach agreements to payback its creditors.