GDB Debt Trustee Files Notice of Default
SAN JUAN — Following the Government Development Bank’s (GDB) failure to pay about $370 million this week, the trustee filed Thursday its notice of default, whereby it concedes that its pursuit of remedies is currently limited given the enforcement of the recently enacted Puerto Rico Emergency Moratorium & Financial Rehabilitation Act, along with the subsequent executive orders, on the GDB.
“The Notice of Default was expressly made pursuant to, and is not to be construed as inconsistent with, the Moratorium. The Trustee will continue to evaluate and analyze all relevant information, as it becomes available,” reads the filing submitted by Wilmington Trust, which took over as the GDB debt’s trustee after Banco Popular decided to stop acting as such back in March.
Moreover, Wilmington Trust also announced it has retained Philadelphia-based law firm Drinker Biddle & Reath to represent it on the matter.
“There will be a number of lawsuits,” Gov. Alejandro García Padilla warned earlier this week, noting that the island would fall at the mercy of court judges’ decisions that could potentially affect government operations. Nevertheless, some observers believe the risk of litigation was significantly reduced following Monday’s partial default on the GDB’s debt service and the separate relief deals the bank was able to strike ahead of the May 2 deadline.
Late last week, the GDB pushed maturity on roughly $33 million originally due this week, after reaching a deal with a group of local credit unions, named G25. On Sunday, May 1, in a broadcast message, Gov. Alejandro García Padilla announced he had declared a moratorium on the bank’s debt-service payment, which includes a stay against creditor remedy actions, as the island stood ready to default on roughly $370 million.
Mere hours after the governor’s TV message, another deal was announced by the GDB with a group of hedge funds that own about one-fourth of the bank’s roughly $4 billion in debt, as reported by CB Online on April 19. The bank met, in full, interest payments worth $22 million—a move aimed at protecting local bondholders and credit unions, officials said.
In addition to a 30-day forbearance on about $120 million that was due May 2, the GDB and the hedge-fund group agreed to a general debt-exchange framework that would include a “two-step restructuring” of the bank’s debt. All creditors would first exchange their GDB debt for new paper, amid haircuts, or reductions to principal, of 43.75%. Once, and if the commonwealth’s broader restructuring plan takes place, they would take a 53% haircut.
All in all, the commonwealth missed roughly $370 million of its $470 million debt-service tab due May 2, of which $120 million is covered under the 30-day holiday granted by the GDB’s hedge-fund group.
GDB President & Chairwoman Melba Acosta told Caribbean Business on Wednesday that more local credit unions are on the brink of extending maturity on their GDB notes, initially due May 2, would be extended by a year.