Wednesday, July 18, 2018

Fiscal board certifies Puerto Rico government bank’s restructuring agreement

By on May 11, 2018

SAN JUAN – The Financial Oversight and Management Board for Puerto Rico announced Friday that it has certified the Government Development Bank’s (GDB) amended restructuring support agreement (RSA) with creditors, making it the first such case under Title VI of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa).

The action authorizes the island’s fiscal agency to proceed with a restructuring of the GDB under Title VI.

In its press release, the board said its decision was in response to a request from the island’s Fiscal Agency and Financial Advisory Authority (FAFAA) on April 25 that the panel recertify the amended RSA as a “Voluntary Agreement.”

“The RSA establishes two pools of bond claims, one for claims guaranteed by the Commonwealth and one for non-guaranteed claims. Under the RSA, Puerto Rico Municipality Depositors and on-island GDB bondholders are treated equally with off-island GDB bondholders, all as general unsecured creditors,” the board’s announcement reads.

The RSA provides for the “organized and consensual restructuring of a substantial portion of GDB’s liabilities, including GDB public bonds, deposit claims by municipalities and certain non-public entities and claims under certain GDB-issued letters of credit and guarantees (“Participating Bond Claims”). In exchange for releasing GDB from liability relating to these claims, the claim-holders will receive new bonds to be issued by a new entity (the “Issuer”).

“In order to secure and service the new bonds, GDB will transfer to the Issuer its entire municipal loan portfolio, certain real estate assets available for sale, proceeds, among other assets, of certain public entity loans and a certain amount of cash,” according to the release.

Besides recertifying the agreement, the board said it also “unanimously” consented the designation of Epiq Bankruptcy Solutions LLC as “Calculation and Information Agent” for the solicitation process.

“This agreement represents an important step towards the debt restructuring of Puerto Rico. The transaction simplifies the Government’s financial framework, while creating value for stakeholders, and reaffirms this Administration’s commitment to reach consensus with creditors.

“Creditors supporting the GDB RSA, which include the Ad Hoc Group, Puerto Rico municipalities, on-island cooperativas [savings & loans cooperatives], and an important representation of local bondholders, were very constructive and effective throughout the process, and demonstrated their enthusiasm in the socio-economic recovery of Puerto Rico.

“We encourage creditor groups of other Puerto Rico issuers to follow a similar approach, where the Government can sit down with market participants and resolve legacy issues,” FAFAA Executive Director Gerardo Portela said in a release issued by his agency shortly after the board’s announcement.

The government says the agreement simplifies the bank’s restructuring “while simultaneously providing additional relief to municipalities as they recover from the severe damage and devastation caused to Puerto Rico and its municipalities in the wake of Hurricanes Irma and María.”

The RSA provides that, “upon consummation of the Qualifying Modification, the full amount of each municipality’s deposits held at GDB will be automatically applied against the balance of any loan owed by such municipality to GDB.

Additional relief for municipalities now available

“Additionally, to provide certain municipalities with immediate liquidity, the amendment to the RSA gives each municipality with certified Excess CAE (as defined in the Government Development Bank for Puerto Rico Debt Restructuring Act) the opportunity to receive immediate payment, before consummation of the Qualifying Modification, of 55% of such municipality’s undisbursed certified Excess CAE [certified excess special additional contribution] held at GDB in exchange for releases.

“The Amended RSA also results in a simplified structure whereby GDB’s financial creditors will exchange their claims for only one tranche of new bonds at an upfront exchange ratio of 55%. In addition to the relief provided to the municipalities under the deal, the issuer of the new bonds will receive additional assets in the restructuring,” the government says in its statement.

“Agreement with the Government Development Bank’s creditors is an important accomplishment toward achieving PROMESA’s goals,” board Executive Director Natalie Jaresko said in the board’s release. “The amended RSA demonstrates the Board’s commitment to achieving consensual restructuring agreements where possible.”

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