The Government Development Bank for Puerto Rico is in "selective default," Standard & Poor's said after the governor partially froze account withdrawals.
On Friday Puerto Rico Gov. Alejandro García Padilla signed an order stating that withdrawals from the Government Development Bank for Puerto Rick must be reviewed by a committee at the bank and only be allowed when the money is to be used for essential government services.
S&P cited this action Monday as it cut the bank's issuer credit rating to SD/--/D from CC/Negative/C.
"We view the selective blockage of depositors' access to funds as a default on the bank's counterparty obligations," S&P analyst Shameer Bandeally wrote.
The SD is for the long-term issuer credit rating of selective default. The outlook was changed to "--'' from negative because there is no outlook after the default. The D is the short-term issuer credit rating.
The GDB has historically lent money primarily to Puerto Rico's government, public sector authorities, and municipalities. It has overseen the issuance of debt from all of these entities and has itself issued debt.
According to S&P and Moody's Investors Service, the bank owes $423 million in debt payments on May 2.
Gov. García Padilla recently signed a bill allowing him to declare a debt payment moratorium at the bank. He didn't make this declaration as part of Friday's order and has not made it since.
Both S&P and Moody's expect the GDB to default on some or all of the May 2 payment. Until then S&P has the GDB "issue-level" rating at CC. A missed payment would lead S&P to drop the rating to D, Bandeally said.
"Regardless of the moratorium law's provisions, the expected nonpayment would constitute a default by our definition," said Moody's vice president Ted Hampton. Moody's currently rates the GDB's debt Ca.
Provisions of the two measures signed by the governor last week would allow the government to create a "bridge bank" as a step towards closing and replacing the GDB.
"Because of the GDB's enormous importance to virtually every public, semi-public, and most major private entities on the island, it is unclear what the economic implications of the current hold on deposits will be, or, more importantly, what extent the GDB-related actions will trigger popular demonstrations or other initiatives," Municipal Market Analytics analysts wrote Monday in its Weekly Outlook.
The GDB did not immediately respond to a request for a comment on S&P's action.
In response to the governor's actions Friday on the GDB, opposition New Progressive Party leader Jenniffer González Col-n said she thought the GDB action would just be the first of a series of unlawful and "authoritarian" actions stemming from the act he signed on April 6 authorizing the debt payment moratorium and emergency measures for the GDB.
