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Puerto Rico fiscal agent: Over 50% of government bank creditors sign restructuring agreement

By on June 19, 2017

SAN JUAN – The Puerto Rico Fiscal Agency and Financial Advisory Authority (FAFAA) and the Government Development Bank (GDB) announced Monday that parties representing more than 50% of the bank’s participating bond claims, as defined in its restructuring support agreement (RSA), have signed the accord, effective pursuant to its terms on May 17.

The fiscal agency and the GDB believe the signing represents a step toward the consensual restructuring of the GDB under Title VI of Promesa, according to the announcing release.

GDB RSA Faces Significant Milestones

The RSA provides for a restructuring whereby the GDB’s creditors, including holders of bonds and certain depositors, will exchange their claims against it for one of three tranches of bonds issued by a new municipal entity, at each creditor’s election. Such tranches will have varying principal amounts, interest rates, collateral priority and other payment terms.

As a result of the signings disclosed in Monday’s announcement, supporting creditors under the RSA will be forced to support and vote for the transaction terms in the RSA.

The GDB’s creditors have agreed to substantial discounts to principal and the restructuring does not depend on any funds from the commonwealth’s general fund. The agreement also contemplates a cash payment to Puerto Rico municipalities on account of certain of their accounts with the bank.

While the transaction described in the RSA remains subject to approval by the Financial Oversight and Management Board for Puerto Rico and the U.S. District Court, FAFAA and the GDB believe the support for the transaction to date increases the likelihood of a successful reorganization of the bank.

FAFAA Director Gerardo Portela (Juan J. Rodríguez/CB)

“Today’s developments represent an important step in the restructuring of GDB. I want to thank GDB’s stakeholders for their continued good faith negotiations and commitment to a consensual transaction,” FAFAA Executive Director Gerardo Portela says in the written announcement

Rafael Rojo, spokesman for the Bonistas del Patio local bondholder group, recently told Caribbean Business that he hoped a financial settlement could be reached because, had the GDB filed for bankruptcy under Title III, the bondholders would have received very little of what they had invested.

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