November 30, 2018 / 12:49 AM / in 12 days

Puerto Rico completes first consensual debt restructuring

(Reuters) - Puerto Rico concluded a U.S. bankruptcy court-approved restructuring of its Government Development Bank (GDB) debt, marking its first consensual deal with creditors under a federal oversight law, government officials announced on Thursday.

The flags of the U.S. and Puerto Rico fly outside the Capitol building in San Juan, Puerto Rico May 4, 2017. REUTERS/ Alvin Baez

The GDB deal addresses only about $4 billion of the $120 billion of debt and pension obligations Puerto Rico is seeking to restructure under a form of bankruptcy filed by the U.S. commonwealth’s federal oversight board in 2017.

“The closing of the qualifying modification for GDB is clear evidence that Puerto Rico has the credibility and resolve necessary to resolve its fiscal challenges,” Governor Ricardo Rosselló said in a statement.

Under the deal, the newly formed GDB Debt Recovery Authority issued nearly $2.6 billion of taxable 7.5 percent bonds due in 2040, according to the statement. Bondholders will receive $550 of new bonds for every $1,000 of their existing GDB bond claims, while Puerto Rico municipalities will realize about $55 million in near-term debt service savings.

The GDB deal was accomplished through Title VI of the Puerto Rico Oversight, Management and Economic Stability (PROMESA) Act approved by Congress in 2016 that provides for a consensual restructuring framework between the government and creditors.

In September, GDB creditors overwhelmingly approved the deal, which transfers the defunct bank’s municipal loan portfolios, real estate assets and unencumbered cash to the new recovery authority. The new bonds are backed by a statutory lien on those assets.

Puerto Rico has other debt restructuring deals in the works, including one for the island’s bankrupt Sales Tax Financing Corporation, known as COFINA. If completed, the transaction would tackle roughly $16 billion of sales tax-backed bonds.

U.S. Judge Laura Taylor Swain, who approved the GDB plan earlier this month, is expected to rule on a COFINA deal in January.

A final deal over debt issued by the Puerto Rico Electric Power Authority (PREPA) could be tougher to reach after bond insurance companies that were not part of a preliminary restructuring agreement relaunched litigation in October seeking a receiver for the power agency.

“My administration is committed to continue negotiating in good faith with Puerto Rico’s creditors and pursue creative solutions that safeguard the best interests of the people of Puerto Rico,” Rosselló said.

Meanwhile, the island’s oversight board, created under the PROMESA Act, announced on Thursday the appointment of Brown Rudnick LLP as counsel to its committee investigating potential claims against parties involved in Puerto Rico’s financial crisis.

Reporting by Karen Pierog in Chicago; Additional reporting by Luis Valentin Ortiz in San Juan; Editing by Matthew Lewis

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