La Fortaleza: GDB Interest Payment Wasn’t Made
SAN JUAN — After hours of much deliberation among Gov. Alejandro García Padilla and his administration’s fiscal team, a $28 million interest payment on Government Development Bank (GDB) debt due Aug. 1 failed to be authorized before midnight.
“The GDB interest payment was not made. The GDB has requests for high-priority disbursements that directly affect the delivery of essential services to citizens, but the bank’s liquidity remains precarious and management of funds is evaluated on a day-to-day basis, so we continue weighing these and other reasons to determine whether [the $28 million payment of] interest is paid,” La Fortaleza Chief of Staff Grace Santana stated Tuesday.
“There will be a petition to the board, which I support and understand,” to postpone the decision on whether to make this payment, new GDB President Alberto Bacó Bagué said earlier Tuesday while on his way out of La Fortaleza, where he met with the governor to discuss some of the bank’s pending issues.
He explained there are certain “emergency situations” that prevented the administration from making the $28 million interest payment at this moment. “There are funds we don’t have from FEMA [Federal Emergency Management Agency] that we have to match,” he said.
Bacó left the door open for future interest payments, some $10 million each beginning Sept. 1, despite La Fortaleza’s decision to not pay the $28 million due Aug. 1.
“We hope that these $9.9 million monthly payments could be met, but we would evaluate these at said time,” the new GDB chief said Tuesday.
On Tuesday, Wilmington Trust, the GDB debt’s trustee, notified affected creditors of the nonpayment event on Aug. 1, while further noting that the GDB has a 30-day grace period to cure the defaulted payment.
Caribbean Business sources said discussions dragged into the eleventh hour, with advisers and officials clashing over how the Puerto Rico government should act on the matter.
Some officials argued in favor of paying the $28 million and others pushed for the opposite, betting on the protections afforded by the Puerto Rico Oversight, Management & Economic Stability Act (Promesa), and noting other pending disbursements they believe should have a higher priority than the Aug. 1 payment.
The García Padilla administration had met GDB interest payments during the past few months—a move aimed at protecting local bondholders and credit unions, who own most of the bank’s paper, officials have previously said.
As first reported by this newspaper, the GDB’s board gave late last week the go-ahead for making the payment, but the governor had the final say, as the troubled institution continues to operate under a moratorium order on its debt obligations, along with cash-outflow restrictions amid its strained liquidity levels.
At 9 p.m. Monday, La Fortaleza’s press office stated it wouldn’t comment on the decision.
In all, roughly $300 million in payments were met across credits Monday, with a majority of them made with funds already held by their trustees. That includes some $276 million paid to Sales Tax Financing Corp. (Cofina by its Spanish acronym) creditors, whereby Banco Popular, the trustee, first withholds funds as received until their pledged portion is paid.
Also covered were $14 million due on Employee Retirement System, or ERS, pension bonds, and interest payments of no more than $200,000 on certain Highways & Transportation Authority and P.R. Industrial Development Co. bonds.
On the default side, roughly $11 million corresponding to Puerto Rico Infrastructure Financing Authority bond anticipation notes were missed, as well as a $1.5 million interest payment on general obligation (GO) bonds, as previously reported by Caribbean Business.
Moreover, roughly $50 million would add to the more than $90 million that has already been missed to date on Public Financing Corp. (PFC) bonds—which first defaulted a year ago.
While Promesa provides that the fiscal control board will decide if and when the government will meet interest payments on its constitutionally guaranteed debt, it is unclear what happens while the board is established.