Saturday, December 4, 2021

GDB Restructuring Support Agreement Unveiled

By on May 15, 2017

Gov. Ricardo Rosselló’s administration announced that the Government Development Bank is entering into a Restructuring Support Agreement (RSA) with bondholders, that seeks to achieve a majority threshold that could send it down a path to Title VI of Promesa.

The deal must rally the support of more than 50 percent of the GDB creditors as a precursor for certification to send the deal down a path to Title VI, where two-thirds alignment of creditors would bind the holdouts.

Entrance to Puerto Rico's Government Development Bank. (File Photo)

Entrance to Puerto Rico’s Government Development Bank. (File Photo)

The RSA is the product of a months long haul of talks between the Rosselló administration’s financial and legal advisers and legal representatives of several GDB bondholder groups, who convinced the government that there was a route different than the liquidation proposed in the former fiscal agent’s fiscal plan.

“The key here was coming up with a formula that got the credits into a value range that was amenable to all of the different GDB bondholders,” said a source with knowledge of issues involved in the structuring of the deal. . “So you need to offer basically surrounding net present values to all different creditors. If you stray from that you would have a problem for it to be approved for Title VI. So, with that restriction in mind what we tried to do was design tranches for different needs.”

The proposed deal contemplates a bond exchange that breaks down into three separate tranches with combinations of reductions in principal, maturities and coupon value. Tranche A credits have 55 % face value while offering 7.5 % coupon and Tranche B have 60 %  face value while offering a 5.5% coupon—both are pari pasu. The next hierarchy, Tranche C, recover 75 % face value while offering a 3.5 % coupon. Tranche C is a waterfall structure with a longer expected maturity—those start to get paid after Tranche A and B are paid off.

The bond exchange will be paid through a Special Purpose Vehicle that draws from revenues segregated from several government entities.

Gov. Ricardo Rosselló (Juan J. Rodríguez/CB)

Gov. Ricardo Rosselló (Juan J. Rodríguez/CB)

“The way that this wound up being designed bondholders and municipal depositors, some specific government entities that have federal funds are all joining in a claims pool, which is going to share in a new collateral from a list in the RSA,” a Wall Street source told Caribbean Business. “But the most valuable asset that the bank has are basically the municipal loans that feed off of CAE and there is some other collateral and some cash as well. All of that is going into the SPV.”

The RSA stipulates that “all municipalities for which excess CAE deposits that have not been disbursed for FY 2015, 2016 AND 2017 (estimated at $38 million in the aggregate) shall receive 55 cents on the dollar recovery to be paid in cash by GDB on or after the Closing Date, provided that such Designated Depositors enter into a Settlement Agreement waiving the balance of any such claims and otherwise releasing GDB and the Issuer from any claims or causes of action.”

According to the RSA: “the GDB will act as initial Asset Manager for a period not to exceed twelve (12) months from the Closing Date (such period, the “Transition Period”). A designated back-up servicer (the “Back-Up Asset Manager”), which shall be a “qualified” and “independent” (as such terms are defined in the Definitive Documents) firm of recognized national standing with the requisite expertise and Spanish speaking capability, and which is acceptable to GDB, AAFAF and the RSA Requisite Bondholders, will be engaged not later than the Closing Date to assume the responsibilities of the Asset Manager as soon as practicable and in any event before the end of the Transition Period, on arms-length, market terms in form and substance satisfactory to GDB, AAFAF, and the RSA Requisite Bondholders. The Back-Up Asset Manager will be selected by a competitive RFP process prior to the solicitation of holders of Participating Bond Claims, and GDB shall use commercially reasonable efforts to effectuate the transition of its duties as Asset Manager to the Back-Up Asset Manager as soon as practicable.”

Guards meander about the entrance to La Fortaleza, the current official residence of the Governor of Puerto Rico. (iStock Photo)

Guards meander about the entrance to La Fortaleza, the current official residence of the Governor of Puerto Rico. (iStock Photo)

In the run up to the presser at La Fortaleza restructuring brigades from the creditor camp were hard at work trying to rally support behind the deal. A source with knowledge of negotiations told Caribbean Business that “Tranche A seems to be the most favored for non-locals; Tranche B remains to be seen, but you probably will have locals and Tranche C, which was designed for Coops, because Coops have a different problem, then your typical bondholder. They have an issue with their capital reserves and the value on their balance sheet. So that Tranche was created for them where they would only get a 25 percent haircut; but they would have a second priority on collateral and a lower coupon, which again takes you more or less close to net present value but on their balance sheet it takes care of their problem.”

You must be logged in to post a comment Login