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Tuesday, 21 July 2015

Puerto Rico Says Services Come Before Agency Debt Payment


Puerto Rico’s budget director ratcheted up the risk of a default on some agency securities, saying cash from the commonwealth’s operating budget won’t be redirected to make debt payments due next month.

The comments from Luis Cruz, director of the Office of Management and Budget, come as Standard & Poor’s slashed its rating on the Public Finance Corp.’s bonds to CC from CCC-, calling an Aug. 1 default on the securities a “virtual certainty.”

Puerto Rico said last week the agency failed to transfer $36.3 million to a trustee to cover the Aug. 1 debt payment because the legislature didn’t appropriate the funds. Governor Alejandro Garcia Padilla last month directed island officials to create a debt-restructuring plan by Aug. 30, saying the commonwealth can’t sustain its $72 billion debt burden.

“We all know the difficult situation we are facing in terms of cash flow,” Cruz said during a press conference Monday in San Juan. “And we have to decide how we handle that cash flow and our priority is to provide services to citizens: health, safety, education.”

A $1 million block of Public Finance Corp. tax-exempt bonds maturing August 2024 traded Monday at 24.5 cents on the dollar, for a yield of 31.8 percent, according to data compiled by Bloomberg.

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