Puerto Rico Government Development Bank restructuring process up in the air
SAN JUAN – Although a restructuring support agreement (RSA) between the Puerto Rico Government Development Bank (GDB) and its creditors has been in place since May, it will not be until March that the government seeks to rally support from a majority of its creditors before taking the deal to federal court.
The information is contained in documents GDB lawyers submitted to the U.S. District Court to seek dismissal of a suit filed by the municipality of San Juan that would paralyze the agreement.
At least two sources with knowledge of the negotiations said the GDB may be closer to restructuring its debt through the bankruptcy process under Title III of the federal law Promesa (Puerto Rico Oversight, Management & Economic Stability Act) than under the consensual process established by that statute.
On May 15, the government announced it had signed an agreement to restructure the GDB’s $3.765 billion debt through Title VI of Promesa. Title VI allows for a consensual restructuring process between the entity and a majority of its creditors, subject to the approval of the fiscal oversight board and a federal judge.
The board gave the green light to the agreement on July 12. The next step was to seek support from a majority of the creditors before taking the RSA to federal court. According to the agreement, the objective was to complete these processes on or before Sept. 15.
However, the passage of hurricanes Irma and Maria altered the entire process because many municipalities were in poor condition and the agreement significantly depends on municipalities’ financial capacity to repay their loans with the bank.
On Oct. 20, according to the documents, the GDB and its creditors extended the agreement for 60 days with the goal of rallying creditor support in December.
However, on Dec. 20, the agreement was extended a third time to delay the deal’s milestones because officials were unable to start the voting process, “including the deadline to begin the solicitation vote to March 20, 2018,” court documents say.
The outlook for completion of the RSA has been complicated because the municipality of San Juan last month amended a lawsuit against the RSA after a court denied an injunction to stop it. San Juan claims $192.6 million that supposedly corresponds to its Special Additional Contributions (CAE by its Spanish acronym), among other claims.
In that amended lawsuit, San Juan brought five new causes of action as well as a renewed request to prevent the fiscal control board, the Fiscal Agency & Financial Advisory Authority and the GDB from moving on the RSA claiming it does not comply with Promesa.