Governor Of Puerto Rico Set To Impose Capital Controls
Yesterday, in the latest plot twist surrounding the inevitable Puerto Rico default, we observed that after the commonwealth island’s Senate passed a surprising bill to impose a debt moratorium on any future debt repayment, its bonds – predictably – tumbled.
We also noted that the legislation addressed the Government Development Bank, or GDB, which is facing speculation that it’ll lapse into insolvency. The bank’s receivership process, liquidity and reserve requirements and payment obligations would be suspended indefinitely, according to an analyst’s read of the bill, which also seeks to split the entity into a “good bank” and “bad bank.”
Hedge funds holding debt in the GDB sued on Monday to stop the bank from returning deposits to local government agencies as it faces a growing cash shortage. The funds, which include affiliates of Brigade Capital Management, Claren Road Asset Management and Solus Alternative Asset Management, accused the bank of seeking to “prop up” local agencies at the expense of other creditors. The GDB has a $422 million debt-service payment due May 1.The Government Development Bank serves the dual purpose of providing financial support to local governments and acting as a financial adviser to the commonwealth. The funds, which say they hold a “substantial amount” of almost $3.75 billion in the bank’s outstanding debt, blamed the entity’s deteriorating condition on a “hopeless conflict” between loyalties to Puerto Rico and to creditors.
Fast forward to today, when Puerto Rico Governor Alejandro García Padilla signed a measure into law Wednesday that would enable him to declare a moratorium on the commonwealth’s debt payments, mere hours after it cleared the Legislature amid concerns of securing enough support in the lower chamber and a full-court press by creditor lobbyists demanding changes to the bill.
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