SAN JUAN (Reuters) - Creditors overwhelmingly approved a plan to restructure bonds issued by Puerto Rico’s insolvent Government Development Bank (GDB), according to preliminary voting results announced on Thursday.
The U.S. Commonwealth’s Fiscal Agency and Financial Advisory Authority said final results are expected on or around Sept. 19. The deal would mark the first consensual debt restructuring under the 2016 federal PROMESA Act, which aimed to rescue the island overwhelmed by $120 billion in debt and pension liabilities.
Puerto Rico has been trying to restructure its debt since May 2017 through a form of bankruptcy in U.S. court and has other tentative deals with creditors that combined with the GDB agreement cover about 40 percent of its bonded debt.
The next step would be final approval by Puerto Rico’s federally appointed financial oversight board and by U.S. Judge Laura Taylor Swain, who the government expects will issue an order around Nov. 6.
Under the deal, the GDB, which has about $4 billion of debt, would transfer to a GDB Debt Recovery Authority portions of its loan portfolios, mostly made to municipalities and public agencies, as well as its real estate assets and unencumbered cash. The authority would issue new bonds backed by a statutory lien on those assets in an amount equal to 55 percent of outstanding debt.
There is pushback from a group of unsecured creditors participating in Puerto Rico’s Title III bankruptcy case over the GDB debt restructuring deal.
The unsecured creditor committee, or UCC, seeks to halt the agreement, arguing it violates the commonwealth’s court-ordered bankruptcy stay and PROMESA. The group also raised a flag over the deal’s release of potential claims against current and former GDB directors, officers and other representatives.
The Puerto Rico government and the oversight board have rejected the committee’s arguments and intend to move forward with the GDB deal.
Swain, who presides over Puerto Rico’s bankruptcy cases, took the arguments made by the UCC under advisement during a court hearing on Thursday.
At the hearing, the UCC reminded the court of its concerns over a tentative deal to restructure Puerto Rico’s roughly $16 billion of sales tax-backed or COFINA bonds.
The creditor committee, which represented the commonwealth in negotiating the COFINA settlement framework, would back out of the deal if Puerto Rico’s fiscal plan fails to update its cash flow projections in order to accommodate the terms of the deal, warned Luc Despins of Paul Hastings, the UCC’s lead counsel.
The oversight board is expected to approve a revised version of the commonwealth’s fiscal plan later this month.
Puerto Rico also has a preliminary debt-restructuring deal with a group of bondholders of its power utility known as PREPA, which has some $9 billion in debt. Counsel for the commonwealth’s oversight board said on Thursday it continues to hash out details with these creditors and that PREPA is pushing forward its privatization and concession plans for its generation, distribution and transmission assets.
If completed, the COFINA, PREPA and the GDB deals will enable Puerto Rico to restructure 40 percent of its bonded debt, said Martin Bienenstock from Proskauer, the board’s lead counsel.
Reporting By Luis Valentin Ortiz in San Juan; additional reporting by Karen Pierog in Chicago; Editing by Daniel Bases and Matthew Lewis