Country Report Puerto Rico
- ID: 2138738
- August 2015
- Region: Puerto Rico
- 17 Pages
- The Economist Intelligence Unit
Puerto Rico's creditors have not reacted well to the government's first act of default in the island's ongoing debt crisis. Instead of opening the door to a debt rescheduling, as the government has requested, two major US investment funds and a majority of the island's credit unions are threatening to go to court over a US$58m payment missed by the Private Finance Corporation (PFC), a subsidiary of the Government Development Bank (GDB), on August 1st.
Oppenheimer Funds Inc. and Franklin Templeton Investments, two US investment outfits that hold a combined 55% of PFC's US$1.1bn debt, wrote a letter to the directors of the PFC asking for immediate payment of the principal and interest overdue since August 1st, and hinting of legal action if their claim is not answered. Both funds are also major holders of Puerto Rico's general obligation bonds (GOs) and key players in the renegotiation of the multi-billion dollar debt of the government's Puerto Rico Electric Power Authority (PREPA).
Credit unions, known locally as cooperativas de crédito (credit coops), were also hit by the August 1st default and are also taking a fighting stance. While they hold only US$88m of PFC's debt (8%), the sum is a significant portion of their total investment portfolio. Local regulations for credit unions were relaxed to soften the blow of the default on their financial statements, but there is still a risk that some entities could face severe capital impairment if forced to take a loss on their PFC bond holdings. Coops have asked the legislature to appropriate funds for the payment in the upcoming legislative session next September, but have also threatened to take legal action to recover their investments.