GDB Answers Creditor Group Claims
SAN JUAN — In a bid to clarify “publicly made false statements,” the Government Development Bank said it has been willing to negotiate with its creditors, even though some of them have acted “in bad faith” through legal action, which “hinders talks and severs the trust between the parties.”
“The last offer on the table was made by the bank on June 22, 2016, and as of today, even after following up on it, we have not received a response over the [proposed] terms,” the bank says in a written statement to Caribbean Business.
The expressions were made in response to the letter sent Sept. 21 to the members of Promesa’s fiscal control board, written by advisers to the Ad Hoc Group of GDB Bondholders—which owns about one-fourth of the bank’s roughly $4 billion debt. The group warns about improper transfers of assets at the GDB, denounces preferential treatment to certain creditors of the bank, and says that negotiations stalled since the adoption of Promesa and have been affected even more by the Puerto Rico government’s actions under the local moratorium law, or Act 21 of 2016.
However, the GDB argues that the lawsuit filed in April by the ad hoc group and one of its members, Brigade Capital, and later amended in May, is the main reason for the stalemate in debt-restructuring talks.
“Notwithstanding the obstinacy of the plaintiffs, the GDB continued making efforts in good faith to return to the negotiating table, but plaintiffs have refused,” stated the bank, adding that the last offer was made by the GDB and that interest payments were made in May, June and July, despite a moratorium on its debt having already been declared by the governor at the time.
The financial institution stopped sharing information with the ad hoc group after the most recent legal action against the GDB, because “harmful discovery would have been facilitated to an opponent in litigation.”
In its letter to Promesa’s board, the ad hoc group questions the government and GDB depositors’ compliance with the cash-outflow restrictions placed on the bank under the moratorium law. It also claims to have requested information about recent disbursements, but have yet to receive a response from the GDB over the matter.
The bank criticized the creditor group’s decision to continue its legal recourse, despite holding discussions over the moratorium law and its intent to stabilize the GDB’s dwindling liquidity by controlling the outflow of funds.
“Rather than continue to negotiate in good faith, [the creditor group] chose to amend the lawsuit on May 20, 2016, to challenge the constitutionality of Act 21, jeopardizing the government’s main tool to continue to provide essential services to citizens and upkeep as possible creditors’ rights,” the GDB stated.
Last week, attorneys for the ad hoc group argued during a hearing presided by Federal Judge Francisco Besosa that the court must decide on the validity of the moratorium law. Along with other creditor groups that have filed suits against the local government, they seek to show cause to lift the legal stay provided by Promesa.
See: Federal Hudge Listens to Arguments Against Promesa’s Stay and Witnesses Provide Varying Views about Government’s Liquidity
Moreover, the creditor group wrote on its letter that it is on standby for orders from the board as to “how best become engaged in the upcoming restructuring process.” Also, they claim to be ready to engage in talks with GDB and are hopeful about the bank’s new chief, Alberto Bacó Bagué, who “will bring about an increased focus on GDB’s negotiations” and is committed to returning the bank to the market.
Not related to Cossec
In response to the red flags raised by the ad hoc group over a proposed exchange deal between the Cooperatives Supervision & Insurance Corp. (Cossec by its Spanish acronym) and several local credit unions, the GDB stated that the bank has yet to show any kind of support for the transaction and that it refrained from voting on it when it was approved by Cossec’s board.
The GDB noted that although the bank’s president is a Cossec board member, both public entities are separate institutions, “unrelated to each other.”
In its letter to Promesa’s fiscal board, the creditor group argues that the proposed deal — which mostly includes GDB debt — goes against the federal law and only benefits some of the bank’s creditors. The ad hoc group expects the fiscal control board to pass judgment on the matter.