Puerto Rico restructured bond makes partial payment

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Restructured Government Development Bank for Puerto Rico bonds, issued from the GDB Debt Restructuring Authority, didn’t make 46% of its latest payment in cash. Instead it gave payment in kind — a promise to make the payment later.

The DRA’s trustee, Wilmington Trust announced the development in a posting to the MSRB's Electronic Municipal Marketplace Access site. The Feb. 20 interest payment was made with $43.2 million in cash and $36.4 million in payment in kind.

The U.S. District Court for Puerto Rico approved the restructuring of the GDB debt in November 2018. The par value of the DRA debt is $2.6 billion.

The DRA bonds’ Official Statement said: “The issuer’s ability to pay interest on the new bonds in cash and make principal payments on the new bonds is entirely dependent upon collections on the Restructuring Property. Based on current projections … bondholders should not expect to receive payment in full in cash of principal and interest due on the new bonds.”

The biannual payments had been made entirely in cash up to the February payment.

Municipal Market Analytics Partner Matt Fabian said, “It does look like they have some nonperforming loans and recently took a write down on some real estate assets, and there’s a note about the potential treatment of some assets under the FOMB’s fiscal recovery plan, but I don’t cover the credit that closely to be able to tell you why specifically they used payment in kind instead of cash.”

MMA reported the nonpayment in its Default Trends report. “The new GDB bonds face a highly challenging future: the island’s local governments — which are ultimately funding-debt service through the repayment of their own legacy GDB loans — are likely to struggle with debt service costs absent the heavy commonwealth subsidies that prevailed prior to PROMESA, not to mention their differential economic recoveries from Hurricane Maria, the still ongoing earthquake swarm, and now the coronavirus,” Default Trends said.

In the EMMA posting, Wilmington Trust said that it “has retained the law firm of McDermott Will & Emery LLP and specifically, Kristin Going of that firm, to represent it in connection with the subject matter of this notice and the bonds generally.” Going didn’t respond to a request for a comment.

In the 10 days leading up to the February 20 payment, the DRA bonds were trading mainly from 80 to 84.5 cents on the dollar. They have since slid slowly downward in price and were trading at 74.35 to 74.62 cents on the dollar in block sized trades on Monday morning.

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