SAN JUAN, Nov 11 (Reuters) - Moody’s Investor Service on Wednesday said Puerto Rico is likely to default on at least some of its $355 million in debt payments due Dec. 1, citing growing liquidity pressures.
The U.S. commonwealth, facing around $70 billion in total debt, is struggling to breathe life into a stalled economy with a roughly 45 percent poverty rate. In a note on Wednesday, Moody’s, which has rated Puerto Rico Caa3 negative, said the island “continues to operate with extremely limited internal liquidity and no access to external sources of financing.”
“The government projects a negative $29.8 million cash balance in November, growing to a deficit of $205 million in December,” Moody’s said.
The debt due on Dec. 1 was issued by Puerto Rico’s Government Development Bank. About $273 million of it is so-called general obligation (GO) debt, which is considered the island’s highest priority debt and protected by its constitution.
The GDB has said it will make the payment, but Moody’s was skeptical, noting that Puerto Rico has another $330 million in GO debt due on Jan. 1.
Since July, the commonwealth has not been making its monthly sinking fund payments on the Jan. 1 debt, instead saying it plans to use cash in the island Treasury department’s account at the GDB. According to Moody’s, however, the projected November and December balances in that account are negative.
Puerto Rico Governor Alejandro Garcia Padilla has said that, if forced to choose, the island would default on its debt rather than discontinue crucial services to its 3.5 million people. He has asked creditors to restructure their debt, but has faced resistance.
Since Puerto Rico cannot declare bankruptcy, a default could trigger legal action from GO bondholders. “This potential scenario may increase the pressure on the federal government to intervene in some way,” Moody’s said, possibly by persuading Congress to approve the Obama administration’s proposal to allow Puerto Rico to file for bankruptcy. (Reporting by Nick Brown; Editing by Tom Brown)