Puerto Rico warns of looming cash crunch

Puerto Rico has warned that it may have to restructure its debts unless it is able to raise new money soon, after a deal with some of its hedge fund creditors unravelled last week.

A group of over 30 hedge funds, with own $4.5bn of the island's debts, had agreed to back a new bond sale for almost $3bn to tide Puerto Rico over for another year, as long as it overhauled the sales tax system and kept cutting spending.

However, the sales tax bill was last week voted down, and in a quarterly filing to the Municipal Securities Rulemaking Board's website, posted late on Thursday, Puerto Rico warned that it did not have enough money to meet all its debt repayments in the coming year.

Without a new bond sale, the government and the Government Development Bank - the de facto finance ministry - might deplete the last of their cash by September 30, the filing said.

It is now trying to find new revenue sources and areas to cut in the budget for the 2015-16 fiscal year, but the government said in the filing that it could be forced to take other, more drastic measures.

"These measures could also include a moratorium on the payment of debt service, a debt adjustment, or the utilisation for the payment of the Commonwealth's debt service of certain taxes and other revenues previously assigned by law to certain public corporations to secure their indebtedness," the filing said.

Many investors have already been girding themselves for a restructuring and the bonds were little changed on Friday.

The Puerto Rican $3.5bn bond maturing July 1, 2035 was trading flat at 79.25 cents on the dollar, for an annualised yield 10.49 per cent.

The Puerto Rico Sales Tax Financing bond, or "Cofina", maturing August 1, 2042, climbed to 56.96 cents on the dollar, or a yield of 11.01 per cent.

The admission by the island comes just days after governor Alejandro Garcia Padilla vowed in his annual address to Puerto Rico's legislature that the territory would service all its obligations in full.

"Sometimes we talk about the possibility of not paying our debts - this is folly," Mr Padilla said in the speech last week. "Don't believe that we have only contracted debt with wealthy investors and foreigners. Our debt is also with Puerto Ricans who have put their savings in our bonds."

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