New Trustee for Puerto Rico Government Development Bank’s Debt
SAN JUAN — The Puerto Rico Government Development Bank (GDB) announced in a filing made Friday that beginning on March 7, Delaware-based Wilmington Trust, National Association will become the new trustee for roughly $3.8 billion worth of debt owed by the financially battered bank.
The filing further states that pursuant to an agreement signed on Feb. 26, Banco Popular would no longer serve as trustee of these notes, as Wilmington Trust will succeed it as trustee, registrar and paying agent under the bond documents.
A spokeswoman for the government bank told Caribbean Business that the selection of Wilmington Trust came after Banco Popular requested to step down as trustee of the $3.8 billion worth of GDB debt.
The move comes amid a cash-strapped government bank that continues to see its fiscal health quickly deteriorating, and its liquidity running dangerously low, putting in jeopardy its day-to-day operations.
Liquidity levels during the final stretch of fiscal 2016, which ends June 30, “may be insufficient to operate in the ordinary course and honor its depositary and financial obligations in full,” stated a draft of the commonwealth’s financial statements for fiscal year 2014 that was released a few weeks ago.
About $422 million is owed by the bank on May 2, and government officials have already warned there may be no sufficient cash to meet in full this payment. Declaring a debt moratorium and even seeking relief under existing receivership laws have been mentioned among the range of emergency measures that the government could implement if the island fails to promptly solve its fiscal woes.
“If [the] GDB were to be placed in receivership or if its liquidity falls below a level necessary to operate in the ordinary course, the Commonwealth and its instrumentalities may have limited access to their funds deposited at [the] GDB, which could in turn affect the provision of essential government services,” the draft of the financial report further notes.
Because of the importance of the bank for the commonwealth government, the administration said it “may amend the Organic Act of [the] GDB or enact new emergency legislation (subject to applicable constitutional limitations), including a moratorium” on its future debt payments.
Amid a severe cash crunch, the bank could be unable to comply with its legal reserves before the end of the fiscal year. The GDB must maintain reserves equal to 20% of its demand deposits. This scenario could prompt a request to the Puerto Rico Treasury secretary for a three-month waiver to these requirements. On Dec. 1, 2015, the GDB board had authorized management to request the waiver, if needed.
New York-based M&T Bank Corp. is the parent company of Wilmington Trust, National Association.