Gov. Alejandro Garcia Padilla says he is moving to protect Puerto Rico's residents through an executive order that declares a state of emergency at the Government Development Bank.
The governor issued an executive order that protects the bank's dwindling liquidity by only allowing withdrawals that fund the delivery of essential public services. It does not call for a moratorium on the government bank principal or interest payments.
Garcia said the bank is in talks with creditors regarding a $423 million due May 1.
The order Saturday was the first taken under the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act enacted last week. The law provides emergency powers to the governor including the ability to declare a moratorium on all bond payments.
"The GDB's financial condition has continued to deteriorate and, absent the measures ordered in this executive order, there is an imminent risk of a drastic decrease in GDB's liquidity in the immediate term. This, in turn, would jeopardize the provision of essential services by the commonwealth," the order states.
It notes that the government and creditors are in discussions to address the government's immediate liquidity challenges and to assure its debt service is sustainable over the long-term.
Because restructuring could take time, "the commonwealth has a duty to take any and all actions reasonable and necessary to protect the health, safety and welfare of its residents by ensuring the continuation of essential services," the order adds.
Without debt restructuring, Puerto Rico will be forced to default as it faces nearly $2.5 billion in bond payments from May through July, government officials have said.
The U.S. House Natural Resources Committee next week will consider legislation that will provide bankruptcy powers to Puerto Rico while subjecting it to the authority of a federal oversight board. The U.S. Supreme Court is also reviewing federal court rulings that said a local bankruptcy law enacted by the commonwealth is unconstitutional.
Garcia announced in June that Puerto Rico's nearly $70 billion debt was not payable. Since then, a deal has been struck with creditors to restructure much of the Puerto Rico Electric Power Authority's nearly $9 billion debt.
On Thursday, the utility filed a petition before the island's energy regulator for a new securitization charge, which would pay for the restructured debt following a planned bond exchange. Officials estimate that the charge, which will be revised quarterly, will initially be $11.98 a month for residential customers and .03 cents per kilowatt hour for non-residential customers, according to the filing.