Due to the possibility of a government default on some $2 billion in debt service due July 1, Puerto Rico credit unions confirmed they have enough financial capacity to face the situation, with $486 million in reserves to face possible investment losses.
José A. Flores, acting president of the Corporation for the Supervision and Insurance of Puerto Rico Cooperatives, known as COSSEC in Spanish, said his agency has maintained a monitoring plan of all insured credit union that has allowed it to establish contingency plans to address those cooperatives that have a liquidity problem.
“Given the default in May, some credit unions went through a period of fund withdrawals caused by the incorrect information was spread in some media,” he said. “We want to avoid that misinformation creates a climate of uncertainty and mistrust that encourages partners and credit union depositors to withdraw funds.”
On July 1, the government will see some $13.1 million in General Obligation bonds mature, which for local credit unions does not represent a significant amount, he said. Credit unions have the mentioned reserves to deal with possible losses on investments among which are $336 million in Indivisible Capital and $150 million in other reserves. Credit unions have another $134 million in reserves for loan losses.
“This means that a default will not affect the liquid resources that they have,” Flores said.
Credit unions have total bond investments of $1.7 billion, of which a little more than $1 billion is related to Puerto Rico bonds, while $730 million is in U.S. bonds. Unrealized losses related to Puerto Rico bonds are $530 million. Only a portion of the bonds mature in 2016 and 2017.
Credit unions have bonds with maturities spread over different years to provide the necessary liquidity to operate. For example, the total Puerto Rico and U.S. bonds maturing in 2016 total $99.5 million, which have an unrealized loss of $40.5 million. By 2017, the total maturing bonds are equivalent to $132 million, with an unrealized loss of $62 million. An unrealized loss means a loss on the books that has not materialized because the bond has not been sold.