Puerto Rico shows more evidence of January 1 default with PRIFA bonds shortfall

NEW YORK Puerto Rico's PRIFA infrastructure authority did not transfer funds to its bond trustee to pay debt due Jan. 1 on certain bonds, according to regulatory filings on Tuesday, further confirmation of a default by the U.S. territory.

The embattled Caribbean island said last week that it would pay the bulk of $1 billion debt due Jan. 1, but some bond issues would not be met. The debt due was postponed to Jan. 4 due to the holiday.

The trustee for PRIFA's series 2005 B and 2006 bonds said on Tuesday it did not receive sufficient funds from PRIFA for the payment of debt, although it held a small residual amount from prior payments that it allocated to pay interest. Series A bonds' trustee also disclosed in a separate filing that funds were not received.

On Monday, the trustee for its series 2005 C bonds also said it did not receive funds from PRIFA to pay debt service - which meant a $10.3 million hit for Ambac Financial which insures some of the debt

Bond insurer FGIC will pay holders of certain of Series A and C bonds, one of the filings said, and the trustee notified FGIC of a $6.4 million shortfall of payment on those bonds.

Puerto Rico warned last week that PRIFA would not have sufficient funds to make the full payment on its special tax revenue bonds, Series 2005A–C and Series 2006, and $36 million was expected not to be paid.

It also warned that it would default on $1.4 million debt due to its Public Finance Corp while it would claw back $163 million of revenues from several agencies, including the highway authority, the convention center authority and the island's busing authority in order to pay higher priority bonds.

The actions may open the door to possible litigation from affected creditors.

According to the series 2005 B and 2006 filing, the bond trust agreement said that if holders of at least 20 percent of bonds request, the trustee shall "protect and enforce its rights" with respect to funds and other moneys pledged thereunder, by "suits, actions or special proceedings".

Standard & Poor's Ratings Services on Tuesday downgraded Puerto Rico Infrastructure Authority bonds secured by rum taxes to 'D' (default) from 'CC' with a negative outlook.

(Reporting by Megan Davies; Editing by Dan Grebler, Bernard Orr)