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“(They are) telling investors they are serious about this debt adjustment,” said Peter Hayes, head of asset manager BlackRock’s Municipal Bonds Group. “It may be a precursor to how they make payments going forward if they can’t reach amicable settlements with creditors groups.”

A default could open the door to a fight with investors. Daniel Hanson, analyst at Height Securities, said in a research note last week that market participants would probably file suit in San Juan as soon as Tuesday.

While Puerto Rico has argued that missing a payment would not constitute default because its legislature is not legally bound to appropriate the funds for payment, credit agencies and investors saw it differently.

“Moody’s views this event as a default,” said Moody’s analyst Emily Raimes in a statement. “This is a first in what we believe will be broad defaults on commonwealth debt.”

PFC bonds have weaker protections than many other Puerto Rico bonds such as general obligation debt.

Acosta said the decision reflected “serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico.”

Acosta said that PFC made a partial payment of interest in respect from funds remaining from prior legislative appropriations. These funds of US$628,000 were applied to the Aug. 1 payment.

“A government’s primary responsibility is to provide services to citizens,” said Hayes. “When you finally make the determination not to pay, you know you’re effectively cutting yourself off from the capital markets, but from their standpoint they see it better of two evils.”

© Thomson Reuters 2015