The Puerto Rico Government Development Bank, which provides loans to the U.S. territory’s government and semi-autonomous authorities, is in a “fragile” position, the bank’s president told legislators.
GDB President Javier Ferrer made the comment to members of the Puerto Rico House and Senate during a hearing on the budget for fiscal 2014.
“The debt that most worries the GDB and used to be our diamond is the operational gap the [Puerto Rico] Highway [and Transportation] Authority has remedied with GDB loans last year,” he said, according to a GDB spokesman. “The highway authority debt will grow by $350 million and the GDB could be insolvent if the authority does not approve recurring measures to repay loans,” Ferrer said.
The GDB’s senior-most debt is rated Baa3 by Moody’s Investors Service with a negative outlook. Moody’s rates the authority’s highway revenue bonds at Baa2, its senior transportation revenue bonds Baa3 and its subordinate transportation revenue bonds Ba1.
It is obvious that the GDB is not in strong condition, said Alan Schankel, managing director of fixed income research at Janney Montgomery Scott. However, “It surprises me a little to have the official make that comment.”
Schankel said he was concerned that the GDB has 25% of its outstanding loans to the authority because this is a high exposure to a single borrower and because the borrower is relying on loans for operating expenses.
The authority’s deficit was in the $360 million to $370 million range during fiscal years 2009 to 2011, according an investor presentation prepared by the GDB and the Puerto Rico Treasury Department. The deficit shrank to $345 million in fiscal 2012 and $240 million in fiscal 2013.
The GDB’s outstanding loans to the authority grew from $1.29 billion in fiscal 2011 to $1.88 billion in fiscal 2012 and to $2.05 billion as of December 2012, according to the presentation.
The authority sold $8.52 billion in bonds from 2000 to 2007. It has not sold any bonds since February 2007, according to Thomson Reuters.
In late February new governor Alejandro García Padilla authorized the privatization of Puerto Rico’s main airport. As part of the deal Aerostar Airport Holdings LLC gave $615 million to the Puerto Rico Ports Authority. Of this amount, $491 million was used to pay down loans and loan guarantees from the GDB. Moody’s declared the transaction a credit positive for the GDB.
The Puerto Rico Highway and Transportation Authority did not immediately respond to inquiries.
