Saying that the government borrowed amounts in excess of the limit imposed on it by its constitution, the government is seeking to walk away from another $4 billion in debt.

An audit report published on Thursday suggests that debt-laden Puerto Rico may be able to void some of its borrowing because politicians exceeded constitutional debt limits and their own authority.

The report, shared with MarketWatch, states that some of Puerto Rico’s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors’ claims are unenforceable. The scope of the audit report, issued by the island’s Public Credit Comprehensive Audit Commission, covers the two most recent full-faith-and-credit debt issues of the commonwealth: Puerto Rico’s 2014 $3.5 billion general-obligation bond offering and a $900 million issuance in 2015 of Tax Refund Anticipation Notes to a syndicate of banks led by J.P Morgan JPM, +0.18% .


Money for those debt payments is not in the commonwealth’s proposed budget, either. On Tuesday Puerto Rico’s governor, Alejandro García Padilla, sent a proposed 2016-17 budget to the island’s legislature that provides for only $209 million of the $ 1.4 billion of current debt-service cost. As García Padilla told reporters at a news conference: “This is simple: either we pay Wall Street or we pay Puerto Ricans. If the legislature decides we pay Wall Street more, well, each has his responsibility. I will continue defending Puerto Ricans. Money I send to Wall Street, I do not have to provide services here.”


Puerto Rico defaulted May 1 on a portion of its $72 billion in outstanding debt, but the commission’s audit covers two debt issues expected to default on July 1.
More at link: http://www.marketwatch.com/story/pue...ebt-2016-06-02