SAN JUAN, Puerto Rico, Jan. 5 (UPI) -- Puerto Rico is bracing for impending legal action by creditors after the country defaulted on $37 million in debt Monday.
Gov. Alejandro Garcia Padilla said the island's Justice Department is preparing for lawsuits but acknowledged it would be difficult to be "100 percent prepared."
"It will be very costly -- that litigation -- for the commonwealth and our creditors," he said. "Every dollar used to pay lawyers will be a dollar ... not available to pay creditors."
The default is part of two payments, one for $35.9 million in Puerto Rico Infrastructure Financing Authority debt and another for $1.4 million to its Public Finance Corp. Together they represent a portion of some $1 billion in bond payments that were due Jan. 1.
Padilla is continuing his push to restructure the U.S. territory's debt under Chapter 9 of the U.S. bankruptcy code, something Congress has been reluctant to allow. The New York Times reported ratings agency Standard & Poor's will downgrade the infrastructure authority's rating from CC to D.
Puerto Rico's economy has been in decline since 2006 when a tax break, favorable to manufacturers willing to set up facilities on the island, was phased out. Unemployment has been in double digits and the economy has prompted the largest migration of Puerto Rican residents to the United States mainland since the 1950s.
Ed Adamczyk contributed to this report.