(Adds context and investor quotes)
April 7 Puerto Rico's Government Development
Bank, the U.S. commonwealth's financing arm, has hired Cleary
Gottlieb Steen & Hamilton, a New York-based law firm with a
specialist practice in financial restructuring, the firm and
bank said on Monday.
Cleary Gottlieb is the second restructuring expert retained
by the development bank in the past month. In March, just days
before a $3.5 billion bond sale that helped the island avert a
looming cash crunch, the bank hired Millco Advisors LP, a
Washington-based affiliate of the firm Millstein & Co.
The GDB insists it regularly contacts law firms for advice
about its financing plans, but the second such move in as many
months may raise eyebrows with investors who have long suspected
the economically stressed commonwealth will eventually seek to
restructure some of its hefty $70 billion debt load.
"As fiscal agent to the Commonwealth and its
instrumentalities, the GDB regularly solicits advice and counsel
from a number of legal and financial advisors with respect to
financing plans and other related matters," the bank said in a
statement. "Cleary Gottlieb Steen & Hamilton LLP were engaged by
the GDB as part of these ongoing efforts. As is customary, GDB
does not comment on the nature or content of any legal advice."
The Cleary Gottlieb hiring was first reported by the Wall
Street Journal. A spokesman for the firm confirmed it had been
hired by Puerto Rico but declined to provide any other details.
"It could be a red flag, but I'm sure they're covering all
their bases and they probably are looking at other ways of
borrowing," said Richard Daskin, the chief investment officer of
RSD Advisors in New York, of the news that Puerto Rico had hired
another restructuring specialist.
"It's definitely not fire, it might be smoke, but it might
be good transparent disclosure," he said. "I don't love hearing
it, but I'm not panicking over it."
Puerto Rico pulled off a blockbuster of a bond sale in March
that was heavily oversubscribed, With non-traditional municipal
market investors, such as hedge funds, taking a prominent role.
The sale spared it from the threat of imminent default, but
few who have followed the Caribbean island's financial troubles
doubt that a massive restructuring is in its future.
Because the U.S. territory is not eligible for bankruptcy,
some think restructuring its debt load could look more like the
experiences of countries such as Argentina than U.S. cities like
"This could just be an outgrowth of how they find an
economic and financial fix," said Michael Comes, portfolio
manager and VP research in Cumberland Advisors in Sarasota,
Florida. "It just tells us that they're really pulling out all
the stops. This is a big objective for them to fix the
economy and achieve stability."
Puerto Rico's newly issued debt traded with a yield of 8.7
percent on Monday.
(Reporting by Luciana Lopez and Edward Krudy; Writing by Dan
Burns; Editing by Jonathan Oatis and Grant McCool)