Thursday, June 21, 2018

Puerto Rico fiscal board ‘conditionally’ certifies GDB restructuring agreement

By on July 14, 2017

Government Development Bank (Luis J. Valentín/CB)

SAN JUAN — Late Friday evening, Puerto Rico’s financial control board announced it had “conditionally” certified a restructuring support agreement (RSA) between the island’s Government Development Bank (GDB) and its creditors, paving the way for the overhaul of the entity’s debt under Title VI of the federal Promesa law.

On June 30, the commonwealth government formally requested the board for certification of the RSA as a “qualifying modification,” as defined under Title VI of the federal statute. The deal involves an exchange mechanism for the bank’s debt load, through three new tranches. Haircuts would hover from 25 percent to 45 percent, depending on the tranche, and GDB assets, particularly the municipal loan portfolio and real estate assets, would pay for these new bonds.

Investors Offer to Buy GDB’s $2B Municipal Loan Portfolio

While the board’s press statement says it has “conditionally” certified the RSA, no details were provided on the conditions to which the agreement’s approval—first announced by Gov. Ricardo Rosselló in early May—is subject.

“In general, the higher the exchange ratio between the value of the current claim and the value of the new bonds, the lower the coupon rate,” reads the board’s statement, which adds that island towns with deposits in the cash-strapped government bank, as well as local GDB bondholders, would be “treated equally with off-island GDB bondholders, all as general unsecured creditors.”

Oversight Board to Approve GDB’s Financial Deal

According to the government, the RSA already has support from a majority of the “participating bond claims.” As of June 21, 394 individual parties, holding more than $2.45 billion in claims against the government bank have signed the RSA. The list of supporting GDB bondholders include 50 local credit unions and the Ad Hoc Group of GDB bondholders, which holds more than $1 billion of the bank’s debt.

The board’s initial certification of the GDB’s RSA under Title VI will make the commonwealth’s former fiscal agent the first entity to begin a debt-restructuring process under the mostly out-of-court process established by Promesa.

Most recently, the fiscal board rejected an almost two-year-long RSA between the island’s Electric Power Authority and its creditors, pushing the entity into a bankruptcy process under Title III of Promesa.


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