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GDB, Creditors Working on Economic Terms of Debt-Restructuring Plan

By on April 14, 2016

SAN JUAN — Puerto Rico’s fiscal team and a group of creditors from the Government Development Bank (GDB) continue to negotiate terms of a debt-restructuring proposal that can provide some sort of relief to the cash-strapped bank, GDB President & Chairwoman Melba Acosta said Thursday.

The bank faces a $422 million debt-service payment due May 2, for which it does not have enough cash to meet in full, government officials have stated.

Acosta said both sides have exchanged various versions of a debt-restructuring proposal that would tackle the bank’s roughly $4-billion in outstanding debt. She noted that economic terms are still being hashed out, and that a new counterproposal from the GDB creditor group was expected this week following the government’s latest offer made last weekend.

“We are working on the pricing,” said Acosta. She would be attending a meeting in New York on Monday to further continue negotiations.

As part of the debt-restructuring deal being sought for the financially battered GDB, the commonwealth is also pushing to achieve some sort of forbearance agreement from the bank’s creditors that could avoid a default next month.

However, Acosta conceded that even if the GDB reaches a deal with the group of creditors it is negotiating with, a partial moratorium could still be needed on the $422 million the bank is supposed to pay on May 2.

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GDB central offices in San Juan’s Miramar district

“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,” the GDB chief explained, noting that a partial moratorium could still be needed for the uncovered part of the May debt-service tab.

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 down at the negotiating table, Acosta said.

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 [nondisclosure agreements]. They have come back and made a proposal to the GDB,” said earlier this week Richard Cooper, partner at Cleary Gottlieb, a New York-based law firm retained by the government. No additional details on the GDB creditors’ counter-offer have been given as of 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 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 amid onerous terms for the island, officials have said.

Cooper mentioned how the moratorium legislation, along with the executive order placing restrictions on the bank’s operations, “would stabilize things….[and] address most of the concerns [of a default in May].”

Acting under the Puerto Rico Constitution’s police powers, the moratorium law authorizes the governor to suspend debt-service payments for all commonwealth entities, whenever he deems necessary, as well as a stay against any litigation that may arise. It also amends the receivership process under the bank’s charter law so in the case the GDB is placed under receivership, a temporary “bridge” bank could be created to carry out some of the bank’s functions and honor deposits.

The restrictions on the GDB’s operations came amid growing concerns about the bank’s dwindling liquidity levels. The latter stood at roughly $560 million as of April 1, mere days before the García Padilla administration enacted the moratorium legislation.

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