Una mujer camina frente al logo del Banco Gubernamental de Fomento. (GFR Media) (horizontal-x3)
A woman walks in front of the logo of the Government Development Bank. (GFR Media)

Almost two years after US Congress approved PROMESA federal law, Puerto Rico has taken a concrete step towards renegotiating part of its public debt.

This week, for the first time since Puerto Rico was provided a mechanism to renegotiate its public debt in exchange for the Oversight Board taking control of public finances, the Fiscal Agency and Financial Advisory Authority (FAFAA) informed Judge Laura Taylor Swain that, in about a month, it will submit the first formal request to Court to adjust the Government Development Bank (GDB) debt under PROMESA.

Specifically, in an informative motion, FAFAA - through its lawyers, Suzzanne S. Uhland and Luis C. Marini-Biaggi, of O'Melveny & Myers and Marini Pietrantoni Muñiz, respectively - told Swain that in or before June 22, it plans to send the Board - substantially completed - the legal documents drafts necessary to renegotiate the GDB debt and third parties deposits it keeps in custody since its decapitalization about two years ago. The creditors adjustment - bondholders or depositors - would occur in light of PROMESA Title VI, the chapter that provides for a voluntary negotiation between parties and on which the court does not issue direct decision regarding its reasonability.

First step

"We anticipate that, at some point in August, the transaction must be closed," said to El Nuevo Día, Christian Sobrino, GDB president, economic adviser and governor representative before the Board, detailing the process that would mark a milestone in the island's debt restructuring process.

"This is the only agreement that both the government and the Board have and this will prove Puerto Rico´s ability to reach consensual agreements," said Sobrino, stressing the importance of the agreement reached last year with many of the creditors and that was validated in March.

"Since they will be negotiable instruments, it will be the first issuance of restructured debt issued by Puerto Rico since 2014," he added.

According to the FAFAA´s motion, the government would open the application process to seek creditors consent on July 5.

According to Sobrino, Title VI compliance process would begin one day later, when it is expected that FAFAA, after the Board´s endorsement, will file in Court a request for a qualified modification of the GDB debt.

For Sobrino, Title VI process requires presenting a breakdown of creditors claims according to their guarantee or priority, but that process would have already been substantially completed upon the approval of the Restructuring Support Agreement (RSA) with several hedge funds advised by Ducera Partners, Atlas Management and Bonistas del Patio (Backyard Bondholders), among others.

Currently, about six credit unions have sued the government for the GDB debt renegotiation in an adversarial process that has continued its course.

Half of the debt

According to the RSA, which will be modified again to reflect the transaction calendar changes, the GDB bondholders would receive 55 cents for each dollar they lent to the then fiscal agency.

Meanwhile, depositors – among them, municipalities - would recover a similar amount for the money they entrusted to the GDB custody.

In the case of municipalities, Sobrino stressed that they would receive 55 percent of the deposits in the bank, but if municipalities have GDB loans, their deposits would be used to settle dollar-to-dollar financing, without reflecting the 45 cents that will apply to the rest of the credits.

"The approval request will seek to establish clear procedures related to the approval of the qualified modification, including the calendar for the parties to object the vote portfolio, the request and tabulation processes, ensuring that all parties with interest in the GDB restructuring would have an opportunity to be heard regarding Title VI", indicates FAFAA informative motion.

In total, according to the RSA, until last December, the GDB owed about $ 3,765 billion in bonds. It also owed $ 376 million in deposits to private and similar companies and another $ 507 million in deposits from agencies and government entities.

The proposed transaction contemplates repaying bondholders of municipal loans and government agencies that the GDB still hopes to recover, as well as the sale of properties of the organization, which closed its doors last March.

Title III cases

FAFAA´s motion came just 48 hours before Judge Swain is back in Puerto Rico to preside today the general June hearing on Title III cases. Among other issues, Swain must decide whether to authorize a second payment to the professionals working in PROMESA cases.


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