Saturday, January 28, 2023

Puerto Rico Gov’t Bank Achieves More Relief Over May Debt Payment

By on May 2, 2016

SAN JUAN — Past midnight Sunday and mere hours after Gov. Alejandro García Padilla announced a moratorium on the Government Development Bank’s (GDB) debt obligations, the troubled institution stated it had reached an agreement with a group of creditors, providing the bank with additional relief over its May 2 debt-service payment.

As reported on April 19 by Caribbean Business, the GDB and a group of hedge funds — which own about one-fourth of the bank’s $4 billion debt — have agreed to enter into a 30-day forbearance agreement. The latest deal would cover about $120 million of the bank’s payment on Monday.

The cash-strapped bank would have faced a $400 million payment on principal, with an additional $22 million in interest. But during the past week, the GDB pushed maturity on roughly $33 million after reaching a deal with local credit unions, followed by the agreement struck with the hedge fund group.

Melba Acosta 1

GDB President & Chairwoman Melba Acosta

The bank stated it will meet the $22 million interest payment, which would leave about $250 million of Monday’s debt bill uncovered and virtually destined to nonpayment, or default, following García Padilla’s executive order declaring a moratorium on the payment of GDB debt.

Echoing the governor’s call to Congress earlier Sunday, the GDB chief stated that “the time necessary to reach even an agreement on key terms with one-fourth of a single issuer’s bondholders demonstrates that, in the absence of federal legislation that gives Puerto Rico the tools it needs, the island will be condemned to a quagmire of economic stagnation with no relief, for which both 3.5 million American citizens and our creditors will bear the consequences.”

According to the GDB statement, “without federal action on legislation, including the tools to bind non-consenting creditors, the transaction would be highly unlikely to reach the required participation levels…and the commonwealth as a whole would not be able to move towards a comprehensive restructuring of the island’s debt.”

Inching closer on restructuring terms

During the following weeks, sides are expected to continue negotiations after agreeing to a “framework of indicative terms,” in an effort to reach a debt-restructuring agreement in principle, the GDB stated Sunday. Nevertheless, the bank warned that important items remain subject to further negotiation, while several conditions “would need to be met over the coming months before the deal could proceed.”

“To be very clear, this is but one piece in a complicated process that will require every Commonwealth creditor to participate,” Acosta stressed.

Hurdles loom on the horizon, as negotiations would need to accommodate the needs of all GDB creditors, which include hedge funds, local credit unions and institutional groups on the island.

As government officials had conceded, plans call for having any restructuring deal reached with GDB creditors become a part of the commonwealth’s broader debt-restructuring plan, if it is achieved down the road. To date, the so-called “superbond” has been the administration’s only playing card—a “global” structure whereby the island’s different credits are streamlined into a single “currency” by pooling in the various revenue sources that secure the repayment of these credits.

The agreed framework would include a “two-step restructuring” of the bank’s debt, in which holders would first exchange their GDB debt for new paper, amid haircuts, or reductions to principal, of 43.75%. Once and if the superbond takes place, GDB creditors would agree a haircut of 53%.

“The proposed transaction is being designed to take into account the varied interests of all its creditors, and GDB and the Commonwealth plan on continuing discussions with such groups over the coming weeks to ensure that any agreement in principle reflects their concerns in a debt restructuring,” the GDB statement reads, while adding that the transaction would also seek to protect bank depositors.

You must be logged in to post a comment Login