Puerto Rico issued $296.7 million in debt payments due Wednesday for the Puerto Rico Sales Tax Financing Corporation (known as COFINA) but defaulted on $312.1 million for Government Development Bank (GDB) debt; General Obligation; Public Financing Corporation and Infrastructure Financing Authority debt, said Puerto Rico Fiscal Agency and Financial Advisory Authority (FAFAA) executive director Gerardo Portela.

Besides COFINA, FAFAA issued interest payments on bonds for the Public Employees Retirement System; the Aqueduct and Sewer Authority; the Industrial Development Company; the Highway Authority and the Municipal Financing Authority. All payments issued today go for interest accrued. A payment on principal for GDB debt for $250 million was the largest default registered today.

Portela said regarding pending payments on interest, ‘COFINA was paid in full.’ He added that GDB’s lack of liquidity was the cause for today’s defaults.

In spite of today’s suspension of payments for their debt service, COFINA bondholders are the only ones that have collected their due payments uninterruptedly. According to Portela, part of the new administration’s policy will be to honor all debts, but first they must have a fiscal plan approved by the Fiscal Control Board to have a clearer picture and to enter into good faith negotiations with all bondholders, including COFINA.

‘We are going to enter into good faith negotiations with all creditors, including COFINA creditors, after we have an approved fiscal plan,’ said the executive director.

NotiCel reported on today’s debt payment since early today when the La Fortaleza initially said that they would pay $350 million of COFINA’s debt due today. COFINA debt is paid with Sales and Use Tax revenues. In the afternoon, FAFAA clarified and specified the amount of payments and defaults.

Last year, the government paid COFINA bondholders around $1 billion, although it suspended payment to bondholders and all public debt payments in nine government agencies, including on General Obligation debt.

This has prompted a group of General Obligations bondholders to file a lawsuit at the United States District Court for Puerto Rico requesting that the government stop using IVU proceeds to pay COFINA’s debt, precisely because it has failed to pay General Obligation bonds that, according to the lawsuit, has payment priority over COFINA.

‘COFINA is taking away billions of dollars from the Commonwealth of Puerto Rico. This is not a dispute between creditors; this is money that belongs to the Government,’ said an advisor to the Adhoc group of Bondholders General to NotiCel.

He called on the government to stop these ‘illegal’ payments to the Corporation. ‘We invite the Governor to join our action against COFINA to take back what belongs to Puerto Rico,’ insisted the group’s advisor.

COFINA is a public corporation independent of the Commonwealth of Puerto Rico, which was created in 2006 for the purpose of issuing bonds, guaranteed with revenues from the SUT. Initially, the government transferred 2.75% SUT collections for debt. In October 2013, then governor Alejandro Garcia Padilla increased the allocation to 3.50%.

It’s a kind of trustee arrangement where the Treasury Department makes an automatic monthly for payment of COFINA debt, even while withholding taxpayer refunds, payment to contractors and other debt payment service which, on a best case scenario, only receive payment for interest.

‘The Constitution goes above and beyond any law that is passed. At this moment, a constitutional provision collides with a contract that the government has based on the law that created COFINA with those creditors. What should be prevalent is the Constitution,’ insisted Iván Rivera, a spokesman for the Transparency in Government Finances organization, which has questioned the government’s intentions behinf COFINA and its insistence on continuing with payments to these bondholders in spite of state coffers’ precarious conditions.

The dispute between COFINA and General Obligations bondholders is one of the most central controversies in the process of dealing with Puerto Rico’s debt and the Fiscal Control Board, in a letter to the Governor, acknowledged that this would only be solved by consensus between the parties or by judicial intervention. The Board itself did not take a stand on the dispute.

* Updated to add clarification from La Fortaleza about the payment