Swain’s World: GDB restructuring plan to provide municipal relief
Editor’s note: This story first appeared in the April 12-18, 2018, issue of Caribbean Business.
Puerto Rico’s Government Development Bank (GDB) is closer to becoming the first government entity with a debt-restructuring plan that will provide relief to towns and also includes a 45 percent cut in bond value, which is a bigger cut than was in last year’s original deal.
Once the Financial Oversight & Management Board (FOMB) certifies its fiscal plan, the deal may be put through “very soon,” with the approval of the U.S. District Court. This week, bondholders also approved a recent amendment that simplified the deal. The sources also said other debt-restructuring deals may be coming through even for entities that are already in Title III bankruptcy under the P.R. Oversight, Management & Economic Stability Act (Promesa).
The GDB’s 2014 loss of its investment-grade rating, the resulting loss of market access and the 2015 decision by the government to default on appropriation debt left the government bank with significant nonperforming assets, limited available liquidity and an inability to repay its debt. The P.R. Fiscal Agency & Financial Advisory Authority (Fafaa) was created to assume the GDB’s role as the government’s fiscal agent after it was decided to wind down the bank’s operations.
Last year, the GDB reached an agreement with its bondholders and contemplated a bond exchange that broke down into three separate tranches, with a combination of reductions to principal, maturities and coupon value. Tranche A credits had 55 percent face value while offering a 7.5 percent coupon and Tranche B had 60 percent face value while offering a 5.5 percent coupon. Tranche C recovered 75 percent face value while offering a 3.5 percent coupon that started to get paid after tranches A and B were paid off.
That deal was never formalized through a bondholder vote, as required by Promesa for negotiated deals.