The Puerto Rico Oversight Board approved a negotiated plan for restructuring the Government Development Bank for Puerto Rico’s $4.8 billion in debt.
The deal offers three different bond restructurings that reduce principal by 25% to 45%. Bondholders will get to choose the restructuring deal for their bonds. The options with bigger principal reductions offer bigger percent coupons and stronger security for repayment.
The board also approved an amended fiscal plan for the GDB, according to the Friday announcement. The plan is meant to oversee the winding down of the bank’s operations. The GDB submitted a fiscal plan on April 28. An amended fiscal plan was submitted to the board on June 30.
“Today’s development represents an important step forward in the restructuring of the GDB,” said GDB President Christian Sobrino Vega. “It also represents significant progress in Puerto Rico’s economic recovery.”
Before the passage of the Puerto Rico Oversight, Management, and Economic Stability Act, the GDB had been making loans to Puerto Rico's semi-autonomous authorities for decades. It had also overseen and advised the government's and authorities' sale of bonds to outside parties. The act created a federal oversight board to supervise the restructuring of the debt of Puerto Rico's government and authorities.
Puerto Rico's Fiscal Agency and Financial Advisory Authority has taken over the GDB's role as chief financial advisor to Puerto Rico's government and authorities. It operates out of the same building as the GDB.
The board’s approval of the restructuring and plan “are the result of open dialogue, creativity and the willingness of all parties to reach a restructuring agreement that is fair to all parties,” said FAFAA Executive Director Gerardo Portela Franco.
The board has approved the restructuring deal under Title VI of PROMESA. Under the act, the deal is subject to approval by the U.S. District Court for Puerto Rico and by each creditor class.
In mid-June holders of over 50% of the outstanding bond par value committed to support the deal. By signing the agreement, creditors have been 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 PROMESA.
The GDB, some of its creditors, and Puerto Rico’s Fiscal Agency and Financial Advisory Authority entered into a restructuring support agreement on May 17. On June 30 FAFAA asked the board to approve the agreement.
The board’s approval of the GDB debt restructuring comes after the board in late June rejected a debt restructuring support agreement for the Puerto Rico Electric Power Authority.
The board sent PREPA into a Title III bankruptcy process overseen by a judge. That case has started and is overseen by the same judge overseeing the restructuring of Puerto Rico’s central government debt.