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P.R. Government: Participation in GDB’s RSA Will Be Achieved

By on June 17, 2017

SAN JUAN — The recently announced deal between the Government Development Bank (GDB) and a group of its creditors does not exclude the possibility that the bank could end up in a Title III bankruptcy process to restructure its debt.

While the proposed deal calls for using most of the deposits and assets left in the GDB as collateral for payment of the new bonds to be issued by a special-purpose vehicle (SPV), there are no guarantees either. According to the RSA, if there is not enough money to pay in full all interest on the new bonds, any unpaid balance shall be paid in kind, which means it would be accumulated until the next payment.

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

As this paper was going to press, it was unclear if the deal had obtained the nod from at least 51% of the GDB creditors to have the agreement be submitted to the board by the June 15 deadline.

Gerardo Portela, director of the Puerto Rico Fiscal Agency & Financial Advisory Authority, told Caribbean Business early this week they had received the approval of holders of more than $2 billion in GDB claims.

“We are working on the last phase of due diligence. We are collecting more signatures for the RSA [restructuring support agreement]. There is the June 15 deadline [to submit the deal to the board], but maybe it could take a few more days. But we feel very comfortable as we have a significant level of claims [holders onboard with the deal],” Portela said.

Moreover, both Bradley Meyer—a partner at Ducera Partners and adviser to the GDB ad hoc group—and Rafael Rojo, head of local creditor group Bonistas del Patio, recently expressed confidence the deal will meet participation thresholds.

“We have about 47%,” Meyer told Caribbean Business last week, after participating in an event organized by Bonistas del Patio to discuss the GDB’s RSA with other stakeholders, in a bid to achieve more participation.

The proposed transaction seeks a bond exchange mechanism for the bank’s $3.76 billion debt, in which three different tranches would be issued by an SPV. Haircuts would hover from 25% to 45%, depending on the tranche, while GDB assets, particularly the municipal loan portfolio, would pay for these bonds.

The process under the federal Promesa law calls for Financial Oversight & Management Board approval of the RSA as a “qualifying modification,” after which the GDB will need more than 66.6% of its voting creditors to be in favor of the deal. The agreement would then have to be certified by a judge.

One group that appears to be reluctant to participate in the deal is the island’s mayors because their deposits and repayment of outstanding loans would be used to guarantee the RSA.

While GDB President Christian Sobrino recently said municipalities are technically not part of the RSA, Ducera’s Meyer said towns will be able to participate in the bond exchange or pick from one of the three instruments. The new bonds issued by the SPV will be regulated by New York state law.

“They are being treated fairly,” Meyer said about the RSA’s impact on municipalities.

While the deal includes provisions for a Title III proceeding in which the terms of the deal would carry over to the adjustment plan that is ultimately approved, Rojo hopes a Title VI deal can be achieved.

“If this deal falls through, the GDB will go to Title III and the court will make a decision on the assets. A trustee will either lease assets or sell whatever assets the bank has at a discount, and everyone loses,” Bonistas del Patio’s Rojo told Caribbean Business.

“I hope the government does not use Title III [for the GDB],” he added.

—Public Finance Editor Luis J. Valentín Ortiz contributed to this story.

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