A restructuring deal affecting $4.8 billion of Puerto Rico Government Development Bank debt has gained the support from holders of over 50% of the bonds.
The deal offers three different bond restructurings that reduce bond principal by 25% to 45%. The Puerto Rico Fiscal Agency and Financial Advisory Authority announced Monday that the majority of bondholders by par held had signed the restructuring support agreement.
“Our holders are in favor of this,” said Bonistas del Patio executive director Jorge Irizarry. “They see it as the best possible outcome under the circumstances.” Bonistas del Patio represents holders of Puerto Rico bonds who reside in Puerto Rico.
Irizarry said that the GDB had $4.1 billion in bond debt outstanding. He said the 50% threshold has been met for all the debt -- totaling $4.8 billion.
The agreement went into effect on May 17. The RSA anticipates the deal being consummated after approvals by Puerto Rico Oversight Board and United States District Court for Puerto Rico in the Title VI process of the Puerto Rico Oversight, Management, and Economic Stability Act. According to Title VI, before the agreement can go into effect each class of creditors would have to approve it.
By signing the agreement, creditors have been “obligated” to support and vote for the agreement. FAFAA and “GDB believe that the strong support for the transaction from GDB’s creditors to date increases the likelihood of successful reorganization of GDB,” FAFAA said.
At least 50% of the class and 66% of those choosing to vote within each class would have to approve the deal for it to go forward.
“Today’s developments represent an important step in the restructuring of GDB,” said FAFAA executive director Gerard Portela Franco. “I want to thank GDB’s stakeholders for their continued good faith negotiations and commitment to a consensual transaction.”
With the signed approval from 50%, Irizarry said the deal would go to the Oversight Board for its approval. Assuming it got this approval, there would be a solicitation of all holders of the GDB obligations. Holders would simultaneously vote up or down and vote on which option they support.
He said his group hoped the exchange of existing bonds for the reduced bonds would be complete by Sept. 15.
The GDB deal is one of two consensual debt restructuring deals in Puerto Rico actively in the works. The other one – concerning the Puerto Rico Electric Power Authority, has been developing since summer 2015. Participants are also working within the Title VI process.
On Saturday FAFAA announced that PREPA’s restructuring support agreement deadline for Oversight Board certification had been extended to June 23 from June 16.
Fitch Ratings managing director Dennis Pidherny has said parties want to finalize the deal by July 1, when the authority owes a bond payment.
Whereas the GDB deal is advancing, some observers have expressed concern that the Oversight Board may cause the collapse of the PREPA deal.