September 18, 2018 / 8:28 PM / 3 months ago

Judge rejects creditor move to halt Puerto Rico debt restructuring

Sept 18 (Reuters) - A U.S. judge on Tuesday ruled that a group of unsecured creditors in Puerto Rico’s bankruptcy case cannot stop a debt restructuring agreement involving the island’s Government Development Bank (GDB).

Judge Laura Taylor Swain said the GDB restructuring was happening outside of the bankruptcy, which was filed in May 2017 by the U.S. commonwealth’s federally appointed financial oversight board.

“The GDB restructuring, although subject to court approval, is a vehicle to effectuate a transaction by, not against, the debtors and is not subject to the strictures of the automatic stay,” Swain’s order stated.

The creditors had argued they would be harmed under the restructuring deal, saying it would eliminate their claims against the GDB and siphon off assets that could be tapped for settlements in the bankruptcy case.

A lawsuit, filed earlier this month by the creditors’ committee seeking to void Puerto Rico’s GDB Restructuring Act, which paved the way for the deal, is pending before Swain’s court.

Last week, Puerto Rico government officials announced initial vote results that showed GDB creditors overwhelmingly approved the restructuring, which would mark the first consensual debt deal under the 2016 federal PROMESA Act aimed at rescuing the island overwhelmed by $120 billion of debt and pension liabilities. Approval of the deal by Swain is expected in early November, according to the officials.

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. (Reporting by Karen Pierog in Chicago Editing by Daniel Bases and Matthew Lewis)

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