Puerto Rico Not Making GO Set Asides

Puerto Rico's government has suspended setting aside money for its general obligation debt, increasing concern among some investors that even the island's government-guaranteed debt may not be paid.

A spokeswoman for the Puerto Rico Treasury on Friday confirmed a report by Reorg Research that the government was not making the set asides.

"We aren't making the monthly deposits. But that does not mean in any way that we won't pay our GO obligations," Puerto Rico Secretary of the Treasury Juan Zaragoza said in an interview, according to Reorg.

In early July Puerto Rico Gov. Alejandro García Padilla signed a bill allowing the suspension of the set asides. The bill was intended to help Puerto Rico operate in the early part of the fiscal year, when revenue is lower.

In late June, Municipal Market Analytics said the proposal to allow suspension of the set-asides was "most alarming."

The new law allows the government to suspend the set asides as long as Puerto Rico has not succeeded at borrowing $1.2 billion in intra-year funding or the Puerto Rico Infrastructure and Finance Authority cannot sell a $2.9 billion gas-tax supported bond, according to Puerto Rico Representative Rafael Henández Montañez. The latter bond would provide liquidity to the Government Development Bank for Puerto Rico.

The law allows the government to borrow about $400 million from three commonwealth-run insurance funds.

Puerto Rico's constitution prioritizes the payment of its guaranteed debt over any other financial need. The approved fiscal year 2015-2016 General Fund budget allocated $1.011 billion for general obligation debt.

 

The Treasury spokeswoman also confirmed that the GDB had transferred about $170 million to the bond trustee for payments of its debts on Monday.

 

 

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