Puerto Rico scrambles to save development bank from receivership

April 4 (Reuters) - Puerto Rico’s lawmakers were crafting emergency legislation on Monday night to avoid letting the island’s primary fiscal agent, the Government Development Bank, slip into receivership.

Both houses of the legislature planned to work late to vote on a bill that would let Puerto Rico’s governor declare a debt moratorium, and change elements of the GDB’s charter law, the governor’s Chief of Staff Grace Santana, Senate President Eduardo Bhatia and House Speaker Jaime Perello told reporters.

The U.S. Commonwealth, suffering from a near decade-long recession with a 45 percent poverty rate and shrinking tax base, has defaulted on its debt multiple times and is trying to restructure roughly $70 billion owed to creditors.

The GDB owes nearly $4 billion, including a $422 million payment on May 1, which Governor Alejandro Garcia Padilla has said it cannot pay. Hedge fund creditors earlier on Monday sued to prevent a run on the bank as the fiscal cliff nears, asking a federal court to bar depositors from withdrawing their money.

One provision of the law, they said, would give Puerto Rico’s governor the power to unilaterally declare a moratorium on debt payments, as he deems necessary. While aimed at GDB, the power would extend to any debt issuer on the island.

Another element of the proposal would alter GDB’s structure, though details remain unclear. The proposal would also change the methods for appointing a receiver at the bank, Bhatia and Perello told reporters. This could be key, as a default at GDB could allow creditors to push the bank into receivership.

Both houses were expected to vote on the measure as early as Monday night. (Reporting by a contributor in San Juan; Writing by Nick Brown; Editing by Andrew Hay)