Puerto Rico declares emergency period for development bank

Bloomberg

Puerto Rico Governor Alejandro Garcia Padilla signed an executive order declaring an emergency period for its Government Development Bank to help keep it operating, while declining to halt or suspend its debt obligations.
The Development Bank, which lends to the U.S. commonwealth and its municipalities and is running out of cash, faces a $422 million principal and interest payment on May 1. The bank is negotiating with creditors about that deadline as the island seeks to reduce its $70 billion debt load.
Garcia Padilla won’t impose a moratorium on the bank’s debt payments, so that the negotiations can continue in a constructive manner, he said in a statement Saturday. He said he signed the order to preserve the bank’s liquidity “and allow it to continue its operations in support of the health, safety and well-being of the people.”
Declaring an emergency period allows the governor to create a bridge bank that would take on some of the GDB’s liabilities, including deposits, and continue certain functions of the bank, according to debt-moratorium legislation that the governor signed into law this week. It also enables Garcia Padilla to begin a receivership process for the bank.
The debt-moratorium law allows the governor to suspend debt payments on all island securities through January 2017, and change the GDB’s structure to salvage its remaining assets. The bank has $562 million of liquidity, according to the law. Government agencies have been asking to withdraw their deposits. The governor can now restrict those withdrawals so that agencies can use the money only for essential services.
Puerto Rico and its agencies owe $2 billion to investors on July 1, which the governor has said the island can’t pay. The commonwealth’s economy has shrunk in the past decade and residents are leaving at record rates to find work on the mainland.