Moody's Investors Service said Wednesday that December's drop in the liquidity of the Government Development Bank for Puerto Rico underscores the critical nature of a planned $2.9 billion bond sale.
In a short report, Moody's Senior Credit Officer Ted Hampton noted that the GDB's liquidity unexpectedly slid 30% in December. Net liquidity at the end of December of $1.09 billion was 17% below what the GDB had projected in October.
Puerto Rico's government now plans to sell a bond as large as $2.9 billion that would, among other things, repay the Highway and Transportation Authority's $2.2 billion debt to the GDB.
"While it would not solve the commonwealth's structural financial challenges, this transaction would bolster the GDB's liquidity, positioning it to support the central government's cash needs and to accommodate an increase in its own debt service to $876 million in fiscal 2016 from $481 million this year," Hampton said.
"Failure to execute this transaction, by contrast, would further undermine the already precarious credit position of both the GDB and the commonwealth," Hampton continued.
Puerto Rico's General Fund revenues were 2.5% below budgeted projections. "The central government's revenue shortfalls increase the likelihood it will need to draw on the GDB's cash to help meet its obligations and maintain liquidity, an increasingly tenuous position given the GDB's own liquidity issues," Hampton said.
