Puerto Rican officials talked tough ahead of a major debt payment due on Monday, with the U.S. Territory’s governor predicting default, and chances slipping for a restructuring deal with creditors.
Speaking to reporters on Wednesday, Governor Alejandro Garcia Padilla said “there will be a default on Monday,” adding, “I don’t think there is a deal on the table that avoids a default.”
Puerto Rico’s Government Development Bank, the island’s primary fiscal agent, owes creditors $422 million on Monday, a payment Garcia Padilla has said the bank cannot afford. The looming default is part of a broader economic crisis in the Caribbean haven plagued by $70 billion in total debt, a shrinking population and a 45% poverty rate.
Restructuring talks are ongoing between GDB and a creditor group holding more than $1 billion of its roughly $4 billion in total debt. The group includes hedge funds Solus, Brigade and Claren Road.
Last week, a source close to the matter told Reuters the GDB and the creditor group struck a deal on a debt exchange that could be worth between 47 and 50 cents on the dollar. The end value depends on whether Puerto Rico reaches a broad restructuring deal with all of its creditors. But two other sources at the time said sides were not close to a deal.
The first source on Wednesday said the offer remains but its prospects seem bleak, adding there is “no indication” of progress on a deal or even a forbearance agreement that would let the sides talk through Monday’s deadline.
Garcia Padilla already declared a state of emergency at GDB, and signed a law this month allowing him to impose a moratorium on any debt payment he deems necessary.
The governor will exercise that power at GDB if Monday arrives with no deal, his spokesman, Jesus Manuel Ortiz, told reporters on Wednesday. “As of today, we don’t have the cash to make the payment,’ Ortiz said.
Restructuring talks at GDB started slowly this year on hopes the U.S. Congress would legislate a fix. Congress continues to debate a contentious bill to allow Puerto Rico to restructure its debt, but it likely remains weeks away from a vote.
The GDB is the main liquidity source for Puerto Rico’s public agencies. A default threatens other operations on the island and could affect broader debt restructuring talks being led by the GDB.