The bill would allow the bank to enter into receivership if needed.
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Those creditors knocked Garcia Padilla for pursuing a debt moratorium despite a consensual restructuring offer, a move one government official called a “public relations stunt”.
The commonwealth’s Senate on Tuesday approved a measure that would impose the moratorium. The governor said that San Juan cannot pay creditors when it needs to fund public sector salaries, health and education budgets which if it neglects could unleash a “humanitarian crisis”.
Puerto Rico’s government said the proposal failed “to solve the severe and real challenges” facing Puerto Rico. “COFINA Senior Bondholders hope our fellow creditors acknowledge this dire reality and finally stop holding legislation hostage”, Susheel Kirpalani, counsel to the COFINA Senior Bondholders Group at law firm Quinn Emanuel, said.
On Tuesday, as the House debated the debt bill, a war of words developed between Puerto Rico and its general obligation bondholders, who made an offer to extend principal payments on their debt to help Puerto Rico avoid default.
“Those prowling the Capitol are not those who lent money to our people, they are expecting an absurd profit at the expense of the people”, Rep. Manuel Natal told reporters.
The bill suspends all bond payments, including general obligation bonds, which are guaranteed by the island’s constitution.
The plaintiffs, a group of funds based in NY and the Cayman Islands that says it holds $3.75 billion of the GDB’s roughly $5 billion in outstanding debt, said in a statement they were seeking to block “preferential payments” that have been occurring in violation of Puerto Rican law. It noted that the bank, which issues loans and oversees the island’s debt transactions, has only $562 million in liquidity.
Government officials say they are still in negotiations with creditors, who have rejected the proposed bill and warned that it would lead to numerous lawsuits.
General obligations with an 8 percent coupon and maturing in 2035 traded Tuesday at an average price of 66 cents on the dollar, the lowest since the bonds were first sold in 2014, data compiled by Bloomberg show.
Puerto Rico acted this week following reports that a key financial institution, the Government Development Bank, is almost insolvent.
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“The commonwealth’s fiscal, economic and humanitarian crisis is causing widespread chaos for the government, our creditors and the island’s residents on a daily basis”, she said. “Indeed, it is exactly the type of “Wall Street” solution that led us to the precipice we are now looking over”.
