Standard & Poor's Ratings Services said the ratings on the Government Development Bank for Puerto Rico (GDB; CC/Negative/C) are unchanged, but continue to reflect the company's weak debt service prospects.
GDB announced it managed to pay the approximately $355 million debt due today, but the rating agency believes the chances of it meeting future payments remain bleak.
As of June 30, 2015, GDB had $4.1 billion of outstanding bonds and notes. It faces substantial debt service obligations of approximately $400 million in principal payments during the remainder of the fiscal year ending June 2016, versus available liquidity estimated at less than $500 million (both following today's payments).
GDB's capacity to shore up liquidity remains weak because of a lack of access to market funding and weak prospects of repayments from its very high exposure (through direct loans and investment in bonds) to the commonwealth and its instrumentalities ($6.7 billion excluding loans to municipalities).
Additionally, S&P believes GDB remains at risk of falling short of its legal reserve requirement by as early as the end of 2015. The lack of regular audited financial statements for GDB, as well as for the commonwealth, even a year after the close of the last fiscal year, raises further questions about the adequacy of the bank's liquidity management.
GDB may be unable or unwilling to meet subsequent debt payments as the commonwealth weighs such payments versus meeting its operating business needs and prioritizing the servicing of general obligation debt. To wit, Governor Padilla announced in his address to the U.S. Senate the "claw back" of revenues from certain corporations and instrumentalities with an attempt to repay the government obligation bonds, which have the full faith and credit of the commonwealth.
Also, GDB is negotiating and pursuing a restructuring process with its creditors. Earlier this month, GDB announced that the proposed restructuring will be composed of a comprehensive single transaction, which it intends to accomplish through a consensual voluntary exchange offer.
The ratings on GDB reflect S&P's view that, all else being equal, a default is virtually certain. It will lower the issuer rating to SD if GDB executes a debt exchange, and it will also lower the issue-level ratings on any exchanged debt to D.
