Puerto Rico Government Development Bank to Liquidate -- Update
April 28 2017 - 1:25PM
Dow Jones News
By Andrew Scurria
Puerto Rico's industrial development bank has decided to
liquidate, proposing a fiscal plan to federal officials that calls
for winding down its operations over 10 years.
The Government Development Bank for Puerto Rico, which for
decades acted as the U.S. territory's fiscal agent and government
lender of last resort, can't repay its obligations to bondholders
and should wind down, Puerto Rico officials said Friday at a
meeting in New York with federal oversight officials.
The federal board overseeing Puerto Rico's financial
restructuring swiftly approved the liquidation proposal, details of
which weren't made public prior to the board's decision. The bank
will continue collecting on its outstanding loans to Puerto Rico
agencies, and make disbursements to bondholders and depositors,
board members said.
The development bank owes roughly $4.5 billion to bondholders,
including hedge funds that have argued in court that they must be
paid out on an equal basis with the bank's depositors.
The development bank, known as GDB, owes roughly $4.5 billion to
bondholders, including hedge funds that have argued in court that
they must be paid out on an equal basis with the bank's
depositors.
GDB's debt pile is only a fraction of Puerto Rico's $70 billion
debt load, accumulated through years of borrowing to finance budget
deficits against a diminishing tax base.
The board has already approved a fiscal plan for the central
government to serve as the basis for negotiations with creditors
that allocates less than $800 million a year for debt service. That
represents less than a quarter of the roughly $3.5 billion a year
creditors are owed under existing contracts.
Creditors are up against a deadline to reach consensual
settlements by Monday, when a legal shield protecting Puerto Rico
from debt-related lawsuits is scheduled to expire. Next week, the
board can continue to keep the courthouse doors closed to creditors
by placing Puerto Rico under bankruptcy protection. Creditors could
then be forced to accept unfavorable repayment terms under this
court-supervised process, known as Title III, that was created by
Congress last year.
Oversight board chairman Jose Carrion said that the board could
petition for Title III without a public hearing and declined to
comment further on the board's strategy for the impending deadline.
Filing the bankruptcy petition requires votes from five of the
board's seven members.
"We reserve the right to pass judgment on these issues in
executive session," Mr. Carrion said.
Puerto Rico's advisers have proposed that creditors enter into
standstill agreements to forestall litigation while private talks
continue. But it remains unclear if creditors are willing to
continue negotiating under forbearance agreements or if the board
would agree to delay invoking Title III.
The board also approved fiscal plans for other Puerto Rico
government agencies that call for creditor concessions to close
multiyear fiscal gaps. Puerto Rico's highway authority, its sewer
company and its public power monopoly, all of which owe billions of
dollars in municipal bond debt, secured approval of fiscal plans
predicated on reductions in their debt service outlays. The
University of Puerto Rico hasn't yet coordinated with the
territorial government to develop its plan, Mr. Carrion said.
Only the Puerto Rico Electric Power Authority, known as Prepa,
has hammered out a deal with its creditors, a $9 billion agreement
dating to 2015 that Gov. Ricardo Rossello recently renegotiated to
include additional debt concessions.
The board certified fiscal plan adds requirements for Prepa to
evaluate selling off assets and privatizing aspects of its
power-generation capabilities.
The Puerto Rico Aqueduct and Sewer Authority is considered by
investors to be in better fiscal shape than other instrumentalities
and was the last Puerto Rico issuer to attempt to tap the bond
markets, floating an abortive $750 million offering in late 2015.
Now Prasa will seek holidays on principal repayments or reductions
in interest rates to help close a $3.5 billion funding gap,
according to its presentation to the board.
Water and sewer customers meanwhile would pay higher utility
rates toward deferred capital expenditures. The less money the
utilities need to set aside for their bondholders, the less they
need to seek politically unpopular rate hikes on Puerto Rico
residents and businesses.
"If we don't have competitive rates in Prepa and Prasa, we will
never be able to compete in our region," said Elias Sanchez, the
governor's representative on the board. "We have to build a
competitive scheme in our rates."
Mr. Carrion said the board didn't have enough time to release
public copies of the plan before their approval.
"Simply it was a decision of time constraints," he said. "We had
a lot on our plate and it all just came together today."
Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
April 28, 2017 13:10 ET (17:10 GMT)
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