After the Puerto Rico Infrastructure Finance Authority failed to make a $35.9 million interest payment on its debt, Standard & Poor's Ratings Services has downgraded the authority's infrastructure bonds to default status.
Puerto Rico, which is nearly $1 billion in debt, also failed to make a $1.4 million payment to its Public Finance Corp. Both of the payments were due at midnight on Monday.
S&P downgraded the finance authority's rating to D from CC on bonds secured by federal rum excise taxes. The agency's outlook on the bonds is negative.
Public Affairs Secretary Jesus Manuel Ortiz said in a statement that the selective default was necessary due to a lack of liquidity. Governor Alejandro Garcia Padilla added during an announcement last week that the payments would not be made in order to allow the government to continue paying public employees and issue income tax refunds. The administration has appealed to Congress to extend Chapter 9 bankruptcy protections into Puerto Rico, but so far to no avail.
According to Washington DC-based The Hill, Republican Senator Orrin Hatch of Utah blocked a measure introduced to the Senate Banking Committee by Democratic Senator Chuck Schumer of New York last month that would have given Puerto Rico access to bankruptcy courts and the ability to restructure its debt, arguing that the plan was not “an efficient solution”. Hatch did agree that congressional action is needed to sort out the debacle.
House Speaker Paul Ryan has committed to making Puerto Rican debt relief a top priority for 2016, with plans to find a “responsible solution” by 31 March.
Currently, Puerto Rico's financial obligations are at a lofty $73 billion, which Padilla has declared “unpayable”. Still, the Padilla administration reports that it plans to fulfill its obligation to make a $335 million payment on its constitutionally guaranteed general obligation bonds.