Wait Continues On García Padilla To Restrict GDB’s Cash Outflows
SAN JUAN — As of Thursday afternoon, Puerto Rico Gov. Alejandro García Padilla had yet to sign an executive order that would restrict cash outflows at the financially battered Government Development Bank (GDB), in an effort to stabilize the bank’s dwindling liquidity levels.
For weeks, various public entities — particularly a large number of municipalities — that are not required by law to have their deposits at the GDB have been seeking to withdraw their funds. The bank’s liquidity stood at roughly $560 million as of April 1, mere days before the García Padilla administration enacted the Puerto Rico Emergency Moratorium & Financial Rehabilitation Act.
One of the García Padilla administration’s main reasons for moving swiftly on the enactment of the moratorium law is that it empowers the governor to establish restrictions on the GDB’s operations amid growing concerns over the bank’s quickly deteriorating fiscal health.
While initial plans called for having García Padilla signing an executive order to this effect immediately following the enactment of the moratorium legislation, sources said, the executive order has yet to be signed at this writing.
When asked about the matter by Caribbean Business on her way out of La Fortaleza Thursday afternoon, GDB President & Chairwoman Melba Acosta said the matter is more complicated than just signing the order.
As previously reported by Caribbean Business, sources had said one of the reasons for the administration’s urgency to quickly enact the moratorium measure into law was that the bank couldn’t afford a single day without having the governor restrict the increasing outflow of funds, which has jeopardized the bank’s operations. Some majority lawmakers, including Senate President Eduardo Bhatia, have pointed at the bank’s fiscal health as the reason why they fast-tracked the measure’s legislative passage.
After being presented late Monday, the moratorium legislation cleared the Legislature past midnight on Tuesday amid concerns of securing enough support in the lower chamber and a full-court press by creditor lobbyists demanding changes to the bill. While sources told this newspaper that the bill could have secured enough support despite the amendments being proposed, La Fortaleza pushed to the last minute to have the bill pass without changes, in a bid to avoid sending back the measure to the Senate, which would have reconvened Thursday.
“This legislation also helps the GDB address its difficult situation in an orderly manner,” the governor stated Wednesday, after announcing the enactment of the measure.
Meanwhile, a group of GDB creditors that hold a large amount of the bank’s roughly $4 billion in outstanding debt filed a lawsuit on Monday, seeking that the bank stops transferring funds out, except for those that cover essential services. On Tuesday, plaintiffs filed a petition for a temporary restraining order (TRO), “barring GDB from making any transfers to or for the benefit of creditors other than as necessary to maintain essential public services or as required to pay ordinary course operating expenses of GDB,” according to the motion.
Later during the day, federal Judge Francisco Besosa denied the plaintiffs’ petition for a TRO, and ordered the bank to answer the lawsuit no later than April 15.
“As economic conditions continue to deteriorate in Puerto Rico with no relief in sight, the GDB — like all commonwealth agencies — confronts extremely difficult choices, and it is our responsibility to evaluate all options that can make it possible to pay creditors while ensuring that the GDB continue operations,” Acosta stated earlier this week.
The GDB faces a $422 million debt payment due May 2, and paid last week roughly $10 million in interests. The García Padilla administration has stated that it has yet to find the money to meet in full the looming debt payment. Moreover, the institution is seeking to engage in debt-restructuring talks with its creditors in an effort to achieve some sort of relief before the May payment that could avoid having the bank defaulting on its debt service.
In addition to the restrictions the governor can impose on the bank, the moratorium law amends, or “modernizes,” the receivership process of not only the GDB, but also of the Economic Development Bank. If the GDB is placed under the new receivership process, a temporary “bridge” bank could be created to carry out some of the GDB’s functions and honor deposits.
Acting under the Puerto Rico Constitution’s police powers, the law also allows the governor to declare a moratorium for commonwealth entities that have issued debt whenever he deems it necessary, as well as a stay against any litigation that may result.
Meanwhile, a new entity, called the Puerto Rico Fiscal Agency & Financial Authority, was established by the law to essentially take over the GDB’s roles as the island’s fiscal agent and financial adviser. The entity’s board consists of only one member, and in addition to its fiscal agent duties, will take charge of the commonwealth’s debt-restructuring efforts.
“The commonwealth is insolvent and the situation requires responsible efforts to finding a solution. We remain committed to working with all stakeholders to reach a mutually beneficial outcome to that end,” García Padilla stated Wednesday. “This legislation provides us with the tools to address the highest priority of needs — providing essential services to our people — without fear of retribution.”