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More Local Credit Unions On the Brink Of Joining GDB Deal

By on May 4, 2016

SAN JUAN — Government Development Bank (GDB) President & Chairwoman Melba Acosta told Caribbean Business on Wednesday that more local credit unions are on the brink of joining a deal in which maturity on their GDB notes, initially due May 2, would be extended by a year.

“There are more co-ops that will be joining. Probably next week, we are going to have a second closing with some other co-ops. It could be about $30 million [worth of notes],” Acosta said on her way into La Fortaleza, where commonwealth restructuring advisers met with Gov. Alejandro García Padilla to discuss the latest developments related to the island’s debt-restructuring efforts.

Melba Acosta Jim MillsteinLate last week, the GDB pushed maturity on roughly $33 million in notes that were due May 2, after reaching a deal with a group of local credit unions. On Sunday, in a broadcast message, García Padilla announced he had declared a moratorium on the bank’s debt-service payment, as the island stood ready to default on as much as $370 million.

Millstein & Co.’s Jim Millstein, the commonwealth’s lead restructuring adviser, and Richard Cooper, a partner at New York-based law firm Cleary & Gottlieb, were on the island to participate in Wednesday’s meeting with the governor.

Regarding the risk of litigation following Monday’s partial default, the commonwealth’s fiscal advisers conceded that although there is a moratorium law in place, there is always the risk of having affected creditors challenge the statute.

Mere hours after the governor’s TV message, another deal was announced by the GDB with a group of hedge funds that owns about one-fourth of the bank’s roughly $4 billion in debt, as Caribbean Business reported on April 19. In addition to a 30-day forbearance on about $120 million, 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.

The officials said Wednesday they continue to negotiate the aforementioned terms with the hedge fund group, particularly the treatment of interest when and if the commonwealth is able to strike the broader restructuring plan. Moreover, the GDB is expected to continue efforts to bring all of its creditors onboard the deal, a key condition for it to materialize, officials added.

Acosta said earlier this week that as part of talks leading to the May debt payment, they reached out to “other large holders, some of them local banks, which were invited to join the deal or negotiate with us.

“Unfortunately, they didn’t want to,” she noted at the time.

All things said, the commonwealth missed roughly $370 million of its $470 million debt-service tab across credits due May 2, of which $120 million are covered under the 30-day holiday granted by the GDB’s hedge fund group. The bank paid in full interest payments worth $22 million—a move aimed at protecting local bondholders and credit unions, according to government officials.

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