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CB Sources: GDB Reaches Tentative Deal With Creditor Group

By on April 19, 2016

SAN JUAN — Following debt-restructuring talks held this week between the Government Development Bank (GDB) and a group of its creditors, a tentative deal has reportedly been struck, providing the cash-strapped bank with some relief ahead of its $422 million debt payment due May 2, sources have told Caribbean Business.

The GDB declined to comment on the matter, citing nondisclosure agreements (NDAs) in place, which prevent them from speaking on the ongoing negotiations.

As part of the deal, the group of GDB creditors, which hold about a fourth of the bank’s roughly $4 billion debt, would agree to a forbearance agreement that covers only $120 million of the May payment, sources said. Thus, the Alejandro García Padilla administration could still be pressed to declare a partial moratorium on the remainder of the payment, as officials continue to stress there is not enough money to meet the payment in full.

“Remember that [the GDB creditor group] doesn’t hold the entire [May] payment. This group has about $120 million of the payment, and if additional creditor groups join in, we could cover half of the payment,” GDB President & Chairwoman Melba Acosta told Caribbean Business last week.

She added at the time that the bank is also in conversations with other “large GDB creditors, from Puerto Rico, and when added to the other [creditor] group, would add up to $200 million [of the May payment].”

Meanwhile, the tentative deal reportedly reached this week would also include a debt-exchange process whereby GDB creditors would get new paper amid a haircut, or reduction to principal, in the vicinity of 50%, sources added. Creditors would also accept to receive no principal payments in the next few years. The rest of the bank’s creditors would still need to come on board the deal if the exchange is to take place.

Both sides have gone through various versions of a debt-restructuring proposal that would tackle the bank’s debt woes. Acosta noted last week that economic terms and pricing were still being hashed out, and that a new counterproposal from the GDB creditor group was expected this week following the government’s latest offer.

The island’s recent fiscal developments, including the recently enacted Puerto Rico Emergency Moratorium & Financial Rehabilitation Act and the executive order that followed imposing restrictions on the bank’s cash outflows, have prompted various creditors to sit at the negotiating table, officials have noted.

Apart from limiting cash disbursements and dispensing the bank from required minimum reserves, among other changes, the GDB executive order signed last week doesn’t impose a moratorium on its debt obligations yet, as the administration seeks to foster talks with the bank’s creditors, officials say.

“We are in constant communication with the GDB creditors; we have made an interim proposal, they are under NDAs. They have come back and made a proposal to the GDB,” recently said Richard Cooper, partner at Cleary Gottlieb, a New York-based law firm retained by the government. No additional details on the GDB creditors’ counteroffer have been given at this writing.

“It’s hard to know where [talks] would go, but we are trying our hardest to get a resolution before May 1, or at least an agreement in principle with a large enough group — we’ll see,” Cooper said, while adding that they are also talking with the local cooperatives camp “on a constant basis, exchanging views.”

Previous talks between the bank and its creditors over a debt-exchange deal have failed to result in any agreement due to the onerous terms the island was required to accept, officials have said.

Meanwhile, the GDB’s board currently has five of its seven seats empty, following the recent resignations of several of its members. Current and looming events at the financially troubled bank could prompt swift action by García Padilla to name their replacements, particularly to avoid additional setbacks in creditor talks.

Concerns still remain over the bank’s dwindling liquidity levels, which stood at roughly $560 million as of April 1, mere days before the García Padilla administration enacted the moratorium legislation.

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