November 6, 2018 / 8:36 PM / 11 days ago

UPDATE 3-Judge approves Puerto Rico consensual debt restructuring deal

(Adds Puerto Rico GO bond price)

By Luis Valentin Ortiz

SAN JUAN, Nov 6 (Reuters) - A U.S. judge on Tuesday approved Puerto Rico’s first consensual debt restructuring deal, helping wind down the Government Development Bank (GDB), the island’s former fiscal agent.

Government lawyers called the confirmation hearing a “historic moment” for the U.S. commonwealth’s financial recovery.

“I’m glad we took this step forward toward a new foundation for Puerto Rico,” said Judge Laura Taylor Swain, who presides over the island’s bankruptcy cases under a federal law known as PROMESA.

The GDB deal addresses approximately $4 billion out of Puerto Rico’s $72 billion in existing debt. In total, the bankrupt island has $120 billion in both debt and pension obligations.

“The court’s approval represents a major milestone in the restructuring of Puerto Rico’s debt obligations,” said Natalie Jaresko, executive director of the federally appointed Financial Oversight and Management Board for Puerto Rico.

The plan, overwhelmingly approved by creditors in September, will transfer to a GDB Debt Recovery Authority the bank’s municipal loan portfolios, real estate assets and unencumbered cash.

The authority will issue new bonds backed by a statutory lien on those assets in an amount equal to 55 percent of outstanding debt. The deal also calls for establishment of a Public Entity Trust, which would mostly receive non-performing loans made by the GDB to other government entities.

During Tuesday’s approval hearing, only one party, Siemens Transportation, opposed the transaction over a $13 million claim against the government bank. The dispute was settled during the lunch break, paving the way for Swain’s final approval of the restructuring deal.

GDB’s president and executive director of the Financial Advisory & Fiscal Agency Authority (FAFAA), Christian Sobrino, told Reuters that the deal is “a moment of great satisfaction” and “vindication” following years of negotiations with hedge funds, island municipalities, local credit unions and other GDB creditors. The FAFAA became the island’s fiscal agent following the GDB’s insolvency.

“It is the first time that Puerto Rico or any other U.S. territory uses Title VI of PROMESA,” added Sobrino, in reference to the federal law’s consensual debt-restructuring mechanism.

He said “two or three” other Puerto Rico issuers could use the same legal restructuring framework as the GDB, but did not name them because work remains to be done.

Puerto Rico’s government and four of its public corporations last year filed for a court-ordered bankruptcy process under Title III; Swain will hold a general hearing on that on Wednesday.

Lead financial and legal advisers for the Ad Hoc Group of GDB Bondholders are Ducera Partners and Davis Polk & Wardwell LLP, respectively. The government’s lead legal adviser was O’Melveny & Myers while Ankura provided financial advice.

Puerto Rico’s defaulted benchmark general obligation bonds maturing in 2035 with an 8 percent coupon weakened slightly but held near last week’s 16-month high to end at 60.25 cents on the dollar. (Reporting by Luis Valentin Ortiz in San Juan Additional reporting by Daniel Bases Editing by Leslie Adler, Toni Reinhold)

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