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Puerto Rico House passes bill to restructure GDB debt

By on August 5, 2017

SAN JUAN – Between long breaks, altercations between lawmakers and uneasiness over the recently approved furlough, the House of Representatives passed, with several amendments, a bill that seeks to make way for the restructuring of the Government Development Bank’s (GDB) debt.

The bill now goes to the Senate for consideration when the upper chamber’s legislators return from recess Aug. 10.

“With this measure, an agreement will be ratified with local and foreign bondholders, which was signed in past months, through Title VI of Promesa without having to go to Title III and that it be a judge who decides how the distribution will be and how much corresponds to which person,” said Rep. Antonio Soto during the measure’s presentation.

House Bill 1164, which was widely debated by several sectors and substantially amended on the fifth day of the special session, sets the parameters for a restructuring support agreement (RSA) between the bank and its creditors.

New Progressive Party Rep. Antonio Soto. (Juan J. Rodríguez / CB)

The administration-backed measure also creates the Public Entity Trust and the GDB Debt Recovery Authority, which will be responsible for taking over the bank’s assets and issuing restructuring bonds. The payment of the latter will be mainly sourced from the bank’s municipal loan portfolio, which would belong to the new entity.

Amendments for municipalities

After much discussion with the mayors of the island’s municipalities, the House presented several amendments to H.B. 1164. Among them was the removal of Article 8, which provided quasi-immunity to the officials of the new authority and the members of its board, “so there is no doubt that there are no hidden agendas here,” Soto said.

As for the $300 million in loans granted but not disbursed to municipalities, an amendment was included to ensure that future payments of principal and interest from municipalities on their loans are adjusted to their net balances.

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It is further amended so that municipalities have the option of refinancing their current bonds, notes or loans with any other financial institution, without limitation. Soto explained that municipal deposits that remain frozen in the GDB will be converted into restructuring bonds, as stipulated in the RSA. The agreement gives the option to creditors, including municipalities, to choose between three tranches of new bonds.

Municipalities will have to change their claims for deposits, which total some $367 million, for bonds of the new authority created by the legislation, with cuts of 55 percent, 60 percent or 75 percent of the original value, depending on the bond, and interest rates of 7.5 percent, 5.5 percent or 3.5 percent, respectively. The municipalities will receive these interest payments every six months, the legislator said.

“Likewise, we include an amendment so the municipalities have the capacity to negotiate or sell that bond instrument when they want, to the greater benefit of the municipality. Also, we included a provision to ensure that the municipality has no limitations in being able to restructure its debt with the GDB through private institutions,” he said.

Finally, and with thte aim of safeguarding the municipalities that could be sued by contractors who did not receive payment for infrastructure works affected by the lack of GDB payments, the Legislature included a two-year stay to prevent lawsuits against the municipalities and, in turn, establish a process of negotiation between the parties.

“I want to leave something clear for record, the situation the Government Development Bank is experiencing today is not due to the municipalities of Puerto Rico. In fact, if there is any institution that owes money [to the GDB] and is paying its debts, it is the municipalities,” Soto stressed.

The lower chamber will resume its work on Thursday, Aug. 10, at 1 p.m.

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