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Puerto Rico Industrial Development Co. enters tentative deal to restructure $165 million

By on June 13, 2019

Pridco Director Manuel Laboy (Screen capture of

With GoldenTree Asset Management under Promesa’s Title VI

SAN JUAN — Puerto Rico’s Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym), on behalf of the Puerto Rico Industrial Development Co. (Pridco), entered into a restructuring support agreement (RSA) with GoldenTree Asset Management, Gov. Ricardo Rosselló announced Thursday.

The RSA contemplates a restructuring of the Pridco bonds through a so-called qualifying modification under the Puerto Rico Oversight, Management and Economic Stability Act’s (Promesa) Title VI for consensual agreements.

For the Promesa-created financial oversight board to certify a modification as qualifying, it requires that the issuer consulted with a majority of creditors; that it offer “equal treatment” within each creditor pool; and that it be consistent with the fiscal plan. It also requires approval by the U.S. District Court for the District of Puerto Rico.

GoldenTree holds more than two-thirds, or $176 million, of the outstanding revenue bonds of the government-owned corporation dedicated to promoting investment, whose debt stood at $786 million in 2016.

“We appreciate the hard work and constructive approach demonstrated by the government of Puerto Rico to successfully restructure PRIDCO, an important governmental entity that has facilitated economic development and job creation on the island since 1942,” GoldenTree said in a statement included in the release.

If the qualifying modification is approved, Pridco would “establish a new, bankruptcy remote subsidiary (New Issuer) and transfer certain properties within the PRIDCO portfolio to New Issuer (the Trusteed Properties),” the news release explains. “In turn, PRIDCO Bondholders will exchange the PRIDCO Bonds for special revenue bonds issued by New Issuer and secured by New Issuer’s revenues, including all revenues of the Trusteed Properties.”

The new issuer will be overseen by an independent board and the trusteed properties “will be managed by a professional asset manager to be approved by the government and a majority of the supporting bondholders” following the issuance of a request for proposals, Aafaf said.

In exchange, bondholders “will accept a reduction to the principal of the PRIDCO Bonds (which will be exchanged at an upfront exchange ratio of 94%), a maturity extension, and a two-year moratorium on payments of principal,” according to Aafaf’s release.

The agency said the qualifying modification “—which allows PRIDCO to retain cash generated by the Trusteed Properties that is currently held by PRIDCO (subject to a consent fee paid to the RSA parties and implementation of the restructuring) and the revenues received through the two-year principal moratorium—will provide PRIDCO with the necessary liquidity to fund an operational restructuring, including past due and ongoing PayGo obligations, and focus its efforts on certain long-term initiatives,” Aafaf stressed.

The RSA is the result of extensive negotiations and “represents an important step in PRIDCO’s goal of achieving an operational restructuring and furthering its mission of supporting the economic development of Puerto Rico,” said Christian Sobrino, executive director of AAFAF.

“This restructuring puts PRIDCO in a position to be financially sustainable…[and] enables PRIDCO to provide funding for past due and future PayGo obligations, allows for more efficient government structure by separating development activities from property management activities, and avoids costly litigation with bondholders and a potential Title III, among other benefits,” Economic Development Secretary and Pridco Director Manuel Laboy adds in the release.

Aafaf and Pridco were assisted in the negotiations by O’Melveny & Myers LLP and Pietrantoni Méndez & Álvarez LLC, as legal advisers, and Ankura as financial adviser, while GoldenTree was assisted by Latham & Watkins LLP and Reichard & Escalera LLC.

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