Puerto Rico is at risk of registering its largest default to date, as $470 million in debt obligations are due to bondholders Monday. Much uncertainty surrounds whether the financially strapped island can find the funds necessary to stave off a total default, with Gov. Alejandro Garcia Padilla saying this week that, despite the government seeking a solution with its creditors, an agreement that completely prevents a default is likely not "achievable."

The largest payment due Monday is $422 million owed by the Government Development Bank, which in the past has acted as the island's primary fiscal agent and lender of last resort.

Unfortunately, the GDB is besieged with its own liquidity crisis, with the most recent financial documents showing that the bank only had about $562 million in its coffers. The GDB's financial situation is in such dire straits that Garcia Padilla issued an executive order in early April declaring a state of emergency at the bank and initiating capital controls, which froze nearly all withdrawals and suspended the GDB's lending power.

Late on Friday, the bank announced it was able to come to an agreement with credit unions that hold approximately $33 million of the bonds due Monday, and it was still negotiating a potential transaction related to an exchange of all of the GDB's bond indebtedness. However, its statement noted that the transaction would require the participation of all of the GDB's creditors.



A Puerto Rican flag flies from a building in San Juan, Puerto Rico. Getty Images

In addition to the large GDB payment, the commonwealth also owes smaller sums on a handful of other bonds. The majority of those securities will likely be added to the list of "Puerto Rico bonds in default," according to Moody's Investors Service. "The commonwealth may also default May 2 on pension obligation bonds issued for the Puerto Rico Employees Retirement System (Ca negative), revenue bonds of the Puerto Rico Industrial Development Co. (Caa3 negative), and bonds issued by the Highways and Transportation Authority (HTA, Ca negative)," said Ted Hampton, vice president and senior credit officer at Moody's, in a note issued April 25.

This will not be the first default for Puerto Rico, according to Moody's. The government has failed to make about $143 million in debt obligation payments on subject-to-appropriation bonds issued by the Public Finance Corp. since its historic default in August. The chief executive of Ambac, one of the largest insurers of Puerto Rico paper with about $2.2 billion of net par exposure, believes that critical decision had a role in the bigger problem that is playing out now. "Directionally the governor and his advisors seem to have adopted a narrative of defaults," said Nader Tavakoli, president and CEO of Ambac. "It seems as though the default on the appropriations bill was training wheels for a bigger default picture."