GDB Downgraded to ‘SD’ On Enactment of Moratorium Law
SAN JUAN – Standard & Poor’s Ratings Services said Monday it lowered its issuer credit rating on the Government Development Bank to ‘SD/–/D’ (SD: selective default) from ‘CC/Negative/C’.
“The rating action follows the announcement on Friday April 8th, that Puerto Rico’s Governor Alejandro Garcia Padilla passed an executive order to declare an ‘emergency period’ at the island’s Government Development Bank (GDB),” said Standard & Poor’s credit analyst Shameer Bandeally.
This action, which was effective immediately, prevents GDB’s depositors, including municipalities and public agencies, from withdrawing funds from the bank, except for the purpose of funding “essential services.” Essential services include government payroll, police, fire, medical, and education services, among other things. Moreover, all obligations guaranteed by the GDB were also temporarily suspended. “We view the selective blockage of depositors’ access to funds as a default on the bank’s counterparty obligations. As a result, we are lowering our issuer credit rating…,” S&P’s statement reads.
The following was extracted from the credit rating agency’s release:
The governor did not exercise his authority to declare a moratorium on GDB’s $423 million May 2nd debt payment, reflecting continuing restructuring negotiations between GDB and its creditors. As GDB grapples with how to prioritize its obligations and utilize the remaining roughly $560 million in available liquidity it reported as of April 1st, we continue to believe that a default on the upcoming May payments is “virtually certain”. Our ‘CC’ issue-level ratings on GDB’s funded debt reflect this expectation. We will lower our issue-level ratings on any defaulted or exchanged debt issue to ‘D’, when and if GDB defaults on its debt service payment, executes a distressed debt exchange, or potentially in the event that a moratorium on funded debt is implemented.