GDB Urges Creditor Group To Respond to Latest Offer
SAN JUAN — The Government Development Bank (GDB) is urging one of its main creditor groups to stop “unfounded” and “misleading statements” about debt-restructuring talks, and respond to the bank’s last offer, which was made June 22.
“Depending upon their response, [the GDB] can determine if there is a basis to continue negotiations,” reads a letter dated Sept. 29 and signed by Richard Cooper, a partner at Cleary Gottlieb, one of the firms advising the government on restructuring matters.
On Sept. 21, the Ad Hoc Group of GDB Bondholders—which owns about one-fourth of the bank’s roughly $4 billion debt—wrote to Promesa’s fiscal board, warning about improper transfers of assets at the GDB and denouncing a preferential treatment to certain creditors of the bank. It further noted that debt-restructuring negotiations have stalled since the adoption of Promesa and have been affected even more by the actions of the Puerto Rico government under its local moratorium law.
“It is unfortunate that the Oversight Board has been introduced to GDB and its efforts to reach a consensual restructuring through a letter that contains numerous misstatements, omissions and distortions,” the GDB said in its letter addressed to Brian Resnick, from Davis Polk & Wardwell, advisers to the ad hoc group.
“We regret that you and your clients did not take the opportunity to speak to GDB or its advisors prior to sending your letter to the Oversight Board,” adds the letter, a copy of which was sent to the fiscal board in a bid to provide “a balanced perspective” on the issue.
As previously reported by Caribbean Business, GDB advisers argue that the lawsuit filed in April by members of the ad hoc group, and later amended in May, fueled the stalemate in debt-restructuring talks. They criticize the creditor group’s decision to continue its legal recourse as it has hindered negotiations, and tout efforts to strike a deal continued despite the ongoing litigation.
In a footnote, the GDB’s Sept. 29 letter highlighted that the creditor group wrote to the fiscal board the day before Federal Judge Francisco Besosa listened to arguments from several plaintiffs—including members of the ad hoc group—seeking to lift Promesa’s temporary shield against creditor lawsuits. They seek to invalidate Act 21 of 2016, or the Puerto Rico Emergency Moratorium & Financial Rehabilitation Act, which the ad hoc group deems unconstitutional.
GDB advisers defended the local moratorium legislation’s purpose as necessary to avoid having the government bank “liquidated as depositors fled to private banks.” The letter further notes how those who are suing the GDB at federal court initially stopped seeking a temporary restraining order because Act 21 sought the same goal—to stop the increasing outflow of funds from the GDB.
Moreover, the financial institution has previously conceded that it stopped sharing information with the ad hoc group because of their ongoing legal action against the bank, as “harmful discovery would have been facilitated to an opponent in litigation.”
In response to comments made 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 and the local Treasury Department have yet to endorse or support this transaction. The letter noted how the two members at Cossec’s board representing the bank and Treasury “declined to approve the transaction” when the matter was brought up for consideration.
As to the creditor group’s concerns over preferential transfers out of the bank as well as the government and GDB depositors’ compliance with the cash-outflow restrictions placed on the bank under the moratorium law, the bank’s letter denies such claims.
“You allege ‘potentially large preferential transfers out of GDB’ have been made based on a press article reporting on increasing deposits at Banco Popular during the spring, which you know (or should know) to be false based on the information that has been provided to you and the numerous assurances to you during that time that such private deposits consisted of new funds, not funds drawn from GDB,” stresses the letter, a copy of which was obtained by Caribbean Business.
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