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Puerto Rico Wants to Sell You Some Debt Just Before its Possible Default

Alejandro García Padilla Swore as Puerto Rico's GovernorAlejandro García Padilla Swore as Puerto Rico's Governor
Puerto Rico Governor Alejandro García PadillaPhotograph by David F. Gasser—CON LatinContent/Getty Images

Puerto Rico’s Government Development Bank (GDB), the U.S. territory’s primary fiscal agent, has filed with regulators to issue taxable one-year debt as it faces a looming default on May 1.

The filing with the Municipal Securities Rulemaking Board (MSRB) did not list the size of the possible deal or the coupon. Bloomberg news service first reported the potential sale on Wednesday.

Technically, the GDB received an identification number for the securities it plans to sell, according to a website entry in the rulemaking board’s online database, but issuance of the number does not guarantee the securities will actually be sold.

The GDB owes creditors $422 million on May 1, a payment the island’s governor, Alejandro Garcia Padilla, has said it cannot afford. A default at GDB, the main liquidity source for most of Puerto Rico’s public agencies, would be the island’s most significant default to date.

 

Puerto Rico owes creditors $70 billion in total, and a shrinking population and 45% poverty rate have exacerbated its fiscal crisis. Garcia Padilla’s administration is negotiating with creditors on a possible debt restructuring, but talks have been contentious and slow-moving.

The Governor this month declared a state of emergency at GDB, and signed emergency legislation that could let him declare a moratorium on the May 1 payment if no restructuring is reached before then.

The law could allow Garcia Padilla to declare a moratorium on any debt payment that could threaten the island’s ability to fund essential services.

The U.S. Congress is working on legislation aimed at resolving the crisis, but that process is also hitting roadblocks.

U.S. Senator Orrin Hatch, a Utah Republican who chairs the powerful Senate Finance Committee, on Tuesday dismissed as “not satisfactory” a draft bill authored by the Republican-led House Natural Resources Committee, deepening intraparty divisions on the complex rescue effort.

Hatch told reporters the draft is “not going to work,” adding that “we’re not going to be able to pass it over here” in the Senate.