2015-12-01reuters.com

Puerto Rico has begun to default on its debt in order to pay top-priority borrowings backed by its constitution and protect the commonwealth's people, Governor Alejandro Garcia Padilla said on Tuesday, but the status of a Dec. 1 payment remained unclear.

There had been speculation that the U.S. territory would default on all or part of its $355 million notes issued by its financing arm, the Government Development Bank, and due Dec. 1. A default could trigger lawsuits, further spook investors and undermine the island's efforts to climb out of $72 billion in debt.

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Height Securities analyst Daniel Hanson said the comments meant Puerto Rico was defaulting on "instrumentality debt, not debt with a constitutional pledge." Bonds such as GDB debt which has a guarantee, and general obligation debt should be safe, he said, but bonds from entities such as highway authority PRHTA and infrastructure financing authority PRIFA are at risk.



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