Puerto Rico's Government Development Bank announced on Monday, August 3 that it was only able to make a de minimis partial payment on its Public Finance Corporation debt service of $58 million due on August 1.
Puerto Rico's Public Finance Corporation made a payment of approximately $628,000.
According to CNN Money, the Public Finance Corporation's bonds are held by the island's credit unions and their members and other investors.
While it is unclear how much of the Public Finance Corporation's debt is held by the island's credit union, the Public Finance Corporation has borrowed about $1 billion.
Unlike other bonds issued by the Commonwealth with a claim on tax money, these securities are moral obligation bonds and are to be repaid by money appropriated by the legislature. The legislature did not appropriate funds for the repayment of these bonds.
According to the Financial Times, Public Finance Corporation debt maturing in 2024, which last traded on July 24, is priced at roughly 14 cents on the dollar.
Given that this debt is severely impaired, credit unions should be writing down this asset to reflect market values.
This does beg the question -- what is the National Credit Union Administration's contingency plan to deal with Puerto Rico's credit unions?
Update: CU Today is reporting that the National Credit Union Administration issued a statement saying that credit union exposure to these Puerto Rican bonds is minimal and do not pose a material risk to the National Credit Union Share Insurance Fund.
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