Puerto Rico’s legislature approved the negotiated debt restructuring deal for the Government Development Bank, potentially affecting its $4.8 billion of debt.
The deal offers three different bond restructurings that reduce principal by 25% to 45%. If the plan goes forward, bondholders would get to choose the restructuring deal for their bonds. The options with bigger principal reductions offer bigger percent coupons and stronger repayment security.
On Thursday the Puerto Rico Senate approved the Puerto Rico House GDB restructuring bill without amendments. The Senate vote was 19-8, with senators from the minority Popular Democratic Party and Independence Party voting in opposition. Unaffiliated Sen. José Vargas Vidot also voted against the measure.
San Juan and other municipalities oppose the deal because it include a reduction of their deposits at the GDB, which they say is illegal.
"The defense of municipal employees and municipalities is precisely the reason we are approving this bill,” said Senate Vice Pres. Larry Seilhamer, a member of the majority New Progressive Party.
Senate Minority Leader Eduardo Bhatia Gautier said that his party, the PDP, was voting against it because the law created a trust without making it clear how it would be regulated. He also complained that the deal declared all the debt to be legal even though the debt hasn’t been carefully reviewed to be sure this was the case.
Puerto Rico’s Fiscal Agency and Financial Advisory Authority, the GDB, and representatives of the GDB’s stakeholders reached the deal in mid-May 2017.
In mid-June holders of over 50% of the outstanding bond par value committed to support the deal. By signing the agreement, creditors were obligated to support and vote for the agreement. At least 50% of the creditor class and 66% of those choosing to vote within each class would have to approve the deal for it to go forward under the Puerto Rico Oversight, Management and Economic Stability Act.
The Puerto Rico Oversight Board approved the measure in mid-July under Title VI of PROMESA.
Additionally, the U.S. District Court for Puerto Rico will have to approve the deal before it goes into effect.
In late July the government of San Juan filed a suit in the U.S. District Court for Puerto Rico against the deal. Since then, other municipal governments have said they will join the suit.