The Government Development Bank (GDB) has reached a tentative restructuring agreement with at least 45% of its creditors. The deal, negotiated by the Financial Advisory and Fiscal Agency Administration (AAFAF in Spanish) is expected to be finalized by September. The agreement allows GDB bondholders to exchange their current bonds and choose between three new bonds, with yields of 55%, 60% or 75% of the original value, and interest rates of 7.5%, 5.5%, or 3.5%, respectively. It was not immediately apparent how large a cut the bank’s depositors would take. (It is worth noting that many municipalities and other government agencies have deposited their funds in the GDB).
Overall, the agreement appears to be an improvement for bondholders: under a preliminary deal reached last year, creditors would have only recovered 47% of the original value of their bonds. Under that agreement, there would have been a forbearance period. Under the new agreement, creditors will be able to receive payment, including interest, as soon as they decide which of the new bonds they would like to acquire in exchange for their existing bonds.
If the restructuring support agreement (RSA) is finalized according to schedule, it would be the second voluntary RSA reached by the Government, and the first under Title VI of PROMESA. According to the federal statute, the Fiscal Oversight Board (FOB) must approve the deal, and a federal district court will eventually need to weigh-in as well. The GDB’s total debt is $7.634 billion. The first voluntary agreement was the $9 billion Electric Power Authority (PREPA)’s RSA, which was reached under the prior administration but later amended by the current one.
Mayors could sue to block GDB deal
After learning of the new GDB-bondholder agreement, mayors from both parties are skeptical of the deal, with San Juan leading the charge of GDB’s criticism.
While the Mayor of the Capital City, Carmen Yulín Cruz, has insisted that she has “good lines of communication” with GDB President, Christian Sobrino, and that dialogue should prevail, she has also hired an experienced New York law firm, Chadbourne & Parke, in case she decides to sue the GDB to prevent the agreement from taking place.
The Mayors Association’s President and Comerío Mayor, Josean Santiago—who like Cruz is a Popular Democratic Party (PDP) mayor— has emphasized the need of studying the details in the deal before joining the lawsuit. Other mayors are openly hostile to the accord. Meanwhile some New Progressive Party (NPP) mayors, such as Bayamón Mayor, Ramón Luis Rivera, Jr., are skeptical but publicly support the agreement reached by their party president, Governor Ricardo Rosselló. Another NPP municipal executive, Fajardo Mayor, Aníbal Meléndez, said he did not know the details of the agreement but reiterated that, “I do not trust the GDB. Right now, my priority is to take my deposits from the GDB and place them in another entity like Banco Popular.”
Title III’s judge receives countless motions ahead of first hearing tomorrow
The U.S. District Court Judge in charge of the Title III debt restructuring process for Puerto Rico, The Honorable Laura Taylor Swain, received 63 motions, petitions, notifications, and objections prior to yesterday’s filing deadline. Many of these notifications were filed by bondholders who do not want their debts restructured by the court. Others are more urgent, such as the Bank of New York Mellon, which is in charge of sending payments owed to Sales Tax Corporation Fund (COFINA in Spanish) bondholders. The next COFINA debt payments are due on June 1 and New York Mellon asked the judge to decide whether they should make the payment or not. The Bank has already been sued by hundreds of COFINA creditors in New York state courts.
Another motion was filed by the bond insurance company, National Public Finance Guarantee, asking the judge not to adopt strictly local procedural rules for the bankruptcy-like process. The bond insurer also asked that the court concurrently address the COFINA controversy.
These are just a few of the many disagreements that Judge Swain will preside over. The first public hearing for this process will take place tomorrow in the federal district court building in San Juan. This restructuring process, which includes General Obligation (GO) and COFINA bonds, constitutes the largest municipal bond bankruptcy in U.S. history.