Puerto Rico development bank bill approved as it pushes forward Title VI efforts
SAN JUAN – After an extensive and heated debate on the legislative measure that makes possible the restructuring of the Government Development Bank (GDB) debt through Title VI of Promesa, the Puerto Rico Senate approved the controversial House Bill 1164 without amendments.
The measure, the final 19-8 vote, now goes to Gov. Ricardo Rosselló for enactment along with Senate Bill 603, which reforms the retirement systems, and S.B. 1142, which raises license fees for slot-operated gaming machines.
The Senate Popular Democratic Party (PDP) minority leader, Eduardo Bhatia, said that the “disgrace” of the bankrupt entity began during the administration of Gov. Luis Fortuño, when the GDB was used as an “ATM” and “$2 billions was borrowed without repayment funds.”
“The question then is why the GDB, the jewel of the crown that Puerto Rico had for so many years, why did it fall out of favor? […] That’s the problem of the GDB, which was used as an ATM, because those who were here during that period allowed that to happen,” Bhatia said.
The minority leader drew attention to the section of the bill that states that all bonds or notes issued by any government entity to the GDB and any loan granted by the GDB before the effective date of the law “are confirmed” and will continue to be “valid” obligations.
“Us, without having analyzed, without having done an in-depth audit of the debt, we are assuming the debt is valid … You, those who vote in favor, assume the debt is valid, even if you haven’t audited it. If it hasn’t been audited it, how do you know it’s valid?” Bhatia questioned.
Regarding the creation of three types of bonds for creditors, including municipalities–with a 55%, 60% or 75% haircut–Bhatia warned it would be “a difficult transaction, where three different types of bondholders are created to do a swap.”
Senate President Thomas Rivera Schatz argued that the measure creates “a legal structure…with a path to follow and not improvising, as did the PDP, which proposes to leave it for later,” while assuring that it is was not approved in a hurry
“As we approve this bill, there are no protests outside the Capitol, the mayors are happy and we are headed in the right direction,” said the Senate president, recalling he had meetings with municipal leaders to address their concerns.
The administration-proposed measure’s report states that “this law makes it possible to comply with the GDB’s certified fiscal plan and the RSA [restructuring support agreement] of that institution, as certified by the [fiscal control board] when creating the framework for the required restructuring.”
H.B. 1164 seeks to materialize the bank’s RSA with its creditors. With the measure, two new entities, the Public Entity Trust and the GDB Debt Recovery Authority, are created, where restructuring bonds, backed mostly by the bank’s municipal loan portfolio, will be issued.