The Government Development Bank for Puerto Rico, which is in line to receive a $2.2 billion infusion under a newly passed tax law, said its liquidity position plunged nearly 30% in December.
According to documents posted on the GDB web site, total net liquidity was $1.55 billion on Nov. 30, and $1.09 billion on Dec. 31.
The GDB's liquidity had raised concern at Moody's Investors Service. In an Oct. 28, comment, "Commonwealth Faces Narrowed Liquidity," the rating service said the bank would have to find a way to refinance its loans to the Highways and Transportation Authority to shore up its liquidity, which the GDB estimated would be $1.32 billion by year-end, substantially higher than it turned out.
Moody's senior credit officer Edward Hampton wrote that Puerto Rico was trying to find a way for the HTA to pay off a large portion of the $2.2 billion it owed to the GDB. On Thursday night Puerto Rico Gov. Alejandro García Padilla signed a bill that aims, among other things, to do just that.
The bill will increase oil taxes and direct some of the proceeds to the Puerto Rico Infrastructure Finance Authority. PRIFA will use this increase and some of the already existing oil taxes to support the sale of up to a $2.95 billion bond. If the bond sale succeeds, the bond proceeds would be used among other things by the HTA to pay off its $2.2 billion in debt to the GDB.
This, in turn, would improve the GDB's liquidity.
However, the oil tax hike bill included limits to the amount of interest that can be offered on the planned bond. It remains to be seen if Puerto Rico can sell as big a bond as it wants to sell, with the yield restriction.
"The dwindling December net liquidity position underscores Puerto Rico's continued reliance on actions such as the planned refinancing of GDB loans to the Highway and Transportation Authority," Hampton said Friday. "Failure to execute this planned transaction because of market access or other challenges would imperil Puerto Rico's already precarious financial position."
Standard & Poor's senior director David Hitchcock said there was significant uncertainty that the GDB's loan to the HTA will be fully refinanced due to the rate cap.
The GDB's spokesman declined to comment for this story.
Hitchcock said that the HTA's pledge of revenues seemed adequate to cover its debt and that S&P would normally give the HTA a better rating than its current B. However, S&P is concerned that the government has made it eligible for the Public Corporations Debt Enforcement and Recovery Act, which is a bankruptcy process for public corporations' debt.
Hitchcock said he was not S&P's specialist on the GDB and left any commentary on the bank to others.
