Puerto Rico Says Government Development Bank Will Stay Open
Over the weekend reports and rumors started surfacing regarding the liquidity of Puerto Rico’s Government Development Bank, with even the possible closing of the bank being floated as a possibility. The bank faces a May 1 bond payment the government says it cannot make, which has caused officials to look for alternatives.
Officials are negotiating with investors to restructure the bank’s obligations and potentially enter into a forbearance agreement that would put off legal suits, Garcia Padilla told reporters Friday in San Juan. “The rumors that the GDB will close are misleading and put in jeopardy the efforts of this administration to reach an agreement with bondholders,” the governor said. “We are doing all we can to avoid a receivership of the GDB.”
The commonwealth’s Commission of Financial Institutions, the bank’s regulator, stated in its most recent review of the GDB that the bank is insolvent and will face a liquidity shortfall of $1.3 billion in June. That determination allows the island’s Treasury Secretary to ask a court to appoint a receiver to oversee the GDB. It’s a move the administration has said it won’t make at this time. The bank in November warned that it was at risk of receivership.
What exactly having the GDB under receivership entails is not entirely certain, given the proposal in Congress regarding Puerto Rico, and the possibility of a strong Oversight Board taking over financial matters for the territory. That said if Congress doesn’t act fast, end-of-this-month fast, May 1 could be the first big shock from Puerto Rico, with the possibility of the GDB going under and the beginning of legal action.