GDB Creditors Agree To 53% 'Haircut'

Press Release

Government Development Bank


GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO
ANNOUNCES FRAMEWORK OF INDICATIVE TERMS FOR
RESTRUCTURING WITH GDB AD HOC GROUP OF CREDI-
TORS

Creditors Agree on 53% Haircut for Global Restructuring and Forbea-
rance From Exercising Remedies 

Announcement Follows Declaration of Moratorium by Governor on
Obligations of GDB 

GDB Will Pay Interest on May 1 


San Juan, P.R. – The Government Development Bank for Puerto Rico (“GDB”)
announced today that it has negotiated a framework of indicative terms for a
restructuring of GDB bonds with a group of bondholders (known as the “Ad
Hoc Group”) holding approximately $900 million of GDB’s outstanding notes
(the “Old Notes”). The framework includes an understanding with the Ad Hoc
 Group regarding key terms for a restructuring of a portion of GDB’s Old Notes
 held by the group and a path forward to a broader restructuring of all of GDB’s
Old Notes. The agreement on key terms will provide a framework for GDB and
 the Ad Hoc Group to continue negotiations over the coming weeks with a view
 to enter into an agreement in principle that would memorialize in full the terms
 and conditions of the proposed restructuring. As part of the understanding rea-
ched today, the Ad Hoc Group and GDB intend to negotiate related terms over
the next 30 days and forbear from pursuing legal action related to the May 1st
debt service payment during such negotiations.

 The agreed key terms contemplate a two-step restructuring of GDB’s obliga-
tions, in which all holders of the Old Notes (including the Ad Hoc Group) wo-
uld first exchange (an “Interim Exchange”) their current holdings for new notes
at GDB (the “Interim Notes”), to be followed by an exchange of such Interim
Notes as part of a future global restructuring of the Island’s debt that includes
 GDB’s debt (the “Global Restructuring”). As part of the agreed key economic
terms, creditors would agree to haircut of 43.75% of the face amount of their
 Old Notes in the first-step exchange. In addition, as part of the transaction,
 bondholders would agree to the proposed treatment for their notes, in a sec-
ond step exchange as part of a Global Restructuring, that would result in an
agreed haircut of 53% of the face amount of their Old Notes. The agreed fra-
mework of key economic and structural terms for the Interim Exchange and
treatment in the Global Restructuring is set forth more fully in Annex A here-
to. As noted in Annex A, many important terms of the transaction remain sub-
ject to further negotiation between the parties. In addition, the transaction wo-
uld be subject to several conditions, which would need to be met over the co-
ming months before the deal could proceed.

Importantly, the proposed terms of the Interim Exchange require 100% partici-
pation by all bondholders, including, in addition to the Ad Hoc Group, the state-
chartered credit unions in Puerto Rico (or “cooperativas”) and other large insti-
tutional groups on island. As a result, the proposed transaction is being designed
to take into account the varied interests of all its creditors, and GDB and the Co-
mmonwealth plan on continuing discussions with such groups over the coming
weeks to ensure that any agreement in principle reflects their concerns in a debt
restructuring. Similarly, as a comprehensive deal for all GDB stakeholders, the
transaction contemplates providing a path forward to depositors, including by
providing collateral for their deposits, as GDB works through its challenges.

Without federal restructuring legislation, including the tools to bind non-con-
senting creditors, the transaction would be highly unlikely to reach the requi-
red participation levels. In the absence of federal legislation, the GDB would
not be able to complete the deal as proposed, and the Commonwealth as a wh-
ole would not be able to move towards a comprehensive restructuring of the
island’s debt.

The announcement of this framework of indicative terms with the Ad Hoc Gro-
up follows the declaration of the Governor of the Commonwealth of Puerto Ri-
co of a moratorium on debt service obligations of GDB. Consistent with the te-
rms of the Governor’s executive order, GDB intends to pay interest on its bonds
due May 1.

“The agreement on key terms with the GDB Ad Hoc Group is the result of ma-
ny weeks of negotiations and discussions between us and the Ad Hoc Group. We
appreciate the good faith and patience they have shown throughout this process
the work both they and Commonwealth officials have put into ensuring that the
interests of all Commonwealth stakeholders are respected going forward. While
we have many steps to go before we reach a full agreement on a deal and that
deal can be consummated, this agreement represents a vital first step in the Co-
mmonwealth’s path to economic recovery,” said GDB President Melba Acosta
Febo.

“To be very clear, this is but one piece in a complicated process that will require
every Commonwealth creditor to participate. The time necessary to reach even an
agreement on key terms with 1/4 of a single issuer’s bondholders demonstrates
 that, in the absence of federal legislation that gives Puerto Rico the tools it needs,
 the island will be condemned to a quagmire of economic stagnation with no relief,
 for which both 3.5 million American citizens and our creditors will bear the con-
sequences.”

Puerto Rico News Digest For May 2, 2016

PR DEFAULTS ON GDB PAYMENT 

From Caribbean Business:

"In a televised message Sunday, Gov. Alejandro García Padilla announced
he has declared a moratorium on the Government Development Bank’s (GDB)
debt service, as the commonwealth stands ready to partially default on as much
as $270 million due May 2 on the bank’s debt. The cash-strapped institution
would have faced a $400 million payment on principal, with an additional $22
million in interest. But during the past few days, the GDB pushed maturity on
roughly $30 million after reaching a deal with local credit unions, followed by
an agreement struck with a creditor group to enter into a 30-day forbearance
agreement that would cover more than $100 million of the bank’s May payment.
The GDB already stated it will pay about $22 million in interest due May 2, as
well as roughly more than $40 million in debt payments across other common-
wealth credits that also hit on Monday..."

FIRST ZIKA DEATH REPORTED IN PR

From The Guardian:

The first American has died from complications related to the Zika virus,
health officials with the Centers for Disease Control reported late Friday.
A Puerto Rican man in his 70s died in February from “complications re-
lated to severe thrombocytopenia”, the CDC reported in its Morbidity and
Mortality Weekly Report. The man, from the San Juan area, fell ill with the
Zika virus and experienced symptoms including fever, rash and joint pain.
After recovering from the Zika symptoms, the man then developed immu-
ne thrombocytopenic purpura, or ITP, an autoimmune disorder that has been
linked to the virus. The bleeding disorder that killed him was as a side-effect
of the ITP..."

BERNIER CALLS FOR IVA REPEAL

From The San Juan Daily Star:

"Popular Democratic Party (PDP) President and gubernatorial candidate Da-
vid Bernier on Thursday called on the PDP majority in the Legislature to pass
legislation to repeal the value-added tax (IVA by its Spanish acronym) slated
to go into effect in June. “To permit an increase in the value-added tax would
hurt the pocketbooks of our people and the operations of our businesses,” Ber-
nier said. “The responsible thing at this time is that the Legislature act to pre-
vent the IVA and the increase in the B2B [business-to-business tax] from being
enacted in final form.”

Puerto Rico News Digest For April 29, 2016

PR GOVT MAY DEFAULT ON MAY 1ST

From Forbes:

"Speaking to reporters on Wednesday, Governor Alejandro Garcia Padilla
said “there will be a default on Monday,” adding, “I don’t think there is a
deal on the table that avoids a default.” Puerto Rico’s Government Develop-
ment Bank, the island’s primary fiscal agent, owes creditors $422 million on
Monday, a payment Garcia Padilla has said the bank cannot afford. The loo-
ming default is part of a broader economic crisis in the Caribbean haven pla-
gued by $70 billion in total debt, a shrinking population and a 45% poverty
rate..."

ZIKA OUTBREAK GROWS, PREGNANT WOMEN WORRY

From USA Today:

"Nowhere in the U.S. has been hit harder by the Zika outbreak than
Puerto Rico, where 570 people have been diagnosed with the virus,
including 48 pregnant women. The true number of Zika cases in Puerto
Rico, where the virus is spreading among local mosquitoes, could be
much greater. Only about one in five people with Zika develop symptoms,
so most of those with the virus are unaware they've been infected,
according to the Centers for Disease Control and Prevention..."

ENVIRONMENTAL GROUPS BACK BOTTLE BILL

From The San Juan Daily Star:

"The Sierra Club and the Basura Cero Puerto Rico (Zero Garbage Puerto
Rico) project are backing a bill in the island House of Representatives to
establish a five cent deposit on glass, aluminum and plastic containers to
prevent them from reaching Puerto Rico’s landfills. The bill, authored by
Rep. Víctor Vasallo and sponsored by Rep. José Báez, is called the Recep-
tacle Recycling Promotion Law, better known as the “Bottle Bill” in English,
and is under consideration by the House in the current session..."

PUERTO RICO RETAIL SALES DOWN 3.71% 

From News Is My Business:

"Puerto Rico retail sales started 2016 in a slump, reflecting a 3.71 percent
year-over-year drop in January, or $113.3 million less than what was gene-
rated during the same month in 2015, Puerto Rico Trade and Export repor-
ted Wednesday. Total retail sales January totaled $2.9 billion, while in 2015
this figure was a little more than $3 billion, agency Executive Director Fran-
cisco Chévere said..."

Puerto Rico News Digest For December 31, 2015

GOVERNOR: PR WILL DEFAULT ON $37 MILLION

From News Is My Business:

"The government of Puerto Rico will make most of its $1 billion debt pay-
ment due Jan. 1, defaulting only on some $37 million of the amount, Gov.
García-Padilla said Wednesday. The government will pay some $434 mi-
llion after deductions for capitalized interest and certain federal subsidies
in debt issued or guaranteed by the Commonwealth, also known as Gene-
ral Obligation bonds. To cover the payment, the Commonwealth will use
$174 million in amounts collected via the enactment of clawback provisi-
ons that redirect revenue earmarked for one debt to cover another expense..."

PDP LEADERSHIP INITIATES TRANSITION

From Caribbean Business:

"Former Secretary of State and Popular Democratic Party (PDP) candidate
for governor, David Bernier, officially took office as party president Wed-
nesday afternoon. Bernier met with the president of his transition commi-
ttee, Rep. Jesús Santa, to outline a transition plan prior to the first meeting
of the PDP’s Governing Board, which will take place on January 7th, 2016
...The official transition will take place on January 7th and will culminate
with a public event dedicated to the people..."

PR DRIVER'S LICENCES STILL VALID FOR TRAVEL

From The San Juan Daily Star:


"Department of Transportation and Public Works Secretary Miguel Torres
urged Puerto Rico residents on Tuesday to remain calm as he assured them
that island driver’s licenses remain an accepted form of identification to tra-
vel to the U.S. mainland. “It is a reality that the current license will undergo
changes so they meet Department of Homeland Security standards, but those
changes will take place in the first half of 2016,” he said. Torres’ remarks
came after the U.S. Transportation Security Administration (TSA) announ-
ced it may stop accepting certain state driver’s licenses, including Puerto Ri-
co’s, as identification when clearing airport security as early as Jan. 10..."

Puerto Rico News Digest For August 5, 2015

2-DAY RATIONING COMES TO LA PLATA

As announced several days ago by the island's water utility, AAA,  cus-
tomers served by the La Plata reservoir will start to see 48-hour water
rationing starting today. This means that running water will be on for
one day, off for two days, then back on. The affected towns are: Baya-
món, Cataño, Dorado, Toa Alta, Toa Baja and Vega Alta. La Plata's
water levels have been steadily decreasing all summer, as the worst
drought the Caribbean area has seen in decades continues to prevent
significant rainfall over the eastern two thirds of Puerto Rico. The Na-
tional Weather Service has declared this past July to be the fourth driest
month in the island's history. La Plata's level stands this morning at 35.
74 meters, falling 13 centimeters from yesterday.

EARTHQUAKES FELT ON NORTH COAST

Two earthquakes were felt on Puerto Rico's north coast early this mor-
ning. The first one was registered at 3:29 AM, and had a magnitude of
4.5. The quake was centered at latitude 19.5208 degrees north and lon-
gitude 66.3658 and had a depth of 72 kilometeres. The tremor was felt
in several municipalities, according to El Vocero. The second quake
happened at 5:23 AM, and had a magnitude of 3.4, with the epicenter
76 miles north of the city of Dorado. No tsunami warning or watches
have been issued as a result of the quakes.

PIERLUISI CONDEMNS GOVERNOR OVER DEFAULT

From The San Juan Daily Star:

New Progressive Party (NPP) President Pedro Pierluisi on Monday lambas-
ted the administration of Gov. Alejandro García Padilla for causing the first
non-payment of the government’s financial obligations in the island’s his-
tory after missing a $58 million payment on Public Finance Corp. (PFC)
debt, due this past weekend. “Today is a grim day in the history of  Puerto
Rico. For the fi rst time in its history the government of Puerto Rico failed
to pay its obligations. The consequences of this irresponsible act will be
hard on all Puerto Ricans,” Pierluisi said.

LUXURY HOTEL BEING BUILT IN TORO VERDE

From Caribbean Business:

Jorge Jorge, the CEO of Toro Verde, a nature adventure tour company, laid
the first stone in the construction of a new luxury hotel, Nayara Toro Ver-
de, in Orocovis, which is projected to inject some $6 million into the lo-
cal economy. "Thanks to all of your support, and to always thinking about
being innovative, pioneering and at the forefront of ecotourism, we have
joined forces with Nayara Hotel, which is a five-star hotel of internatio-
nal recognition that is highly experienced in giving guests unforgettable
experiences, to build a hotel in the mountains of Toro Verde, which will
bring another perspective on luxury tourism and ecotourism to Puerto Rico,"
the businessman said.

PR FACES LITIGIATION OVER DEBT

From Reuters:

GDB President's Statement On Default

August 3, 2015


STATEMENT FROM GOVERNMENT DEVELOPMENT BANK
PRESIDENT MELBA ACOSTA FEBO ON THE SERVICE OF
PUBLIC FINANCE CORPORATION (PFC) BONDS

San Juan, P.R. – Today, Government Development Bank for Puerto Rico
(“GDB”) President Melba Acosta Febo issued the following statement on
the service of Public Finance Corporation (PFC) bonds:

“Due to the lack of appropriated funds for this fiscal year the entirety of the
PFC payment was not made today. This was a decision that reflects the se-
rious concerns about the Commonwealth’s liquidity in combination with the
balance of obligations to our creditors and the equally important obligations
to the people of Puerto Rico to ensure the essential services they deserve
are maintained.

“PFC did make a partial payment of interest in respect of its outstanding
bonds.The partial payment was made from funds remaining from prior le-
gislative appropriations in respect of the outstanding promissory notes se-
curing the PFC bonds. In accordance with the terms of these bonds, which
stipulate that these obligations are payable solely from funds specifically
appropriated by the Legislature, PFC applied these funds—totaling appro-
ximately $628,000—to the August 1 payment.”

Puerto Rico has triggered the biggest municipal default in US history

Ambrose Evans-Pritchard

Business Insider / The Telegraph

Puerto Rico has triggered the biggest municipal default in US history, ris-
king years of bitter legal warfare with creditors and an austerity "death spi-
ral" with echoes of Greece. The island Commonwealth finally ran out of
money on Monday after a desperate effort to stay afloat, and missed a final
deadline for a $58 million payment - handing over just $628,000. It implies
a sweeping default on much of its $72 billion debt burden, equal to 100pc
of Puerto Rico’s gross national product (GNP) and more than five times the
debt ratio of California or Texas.

The Commonwealth is now in legal limbo, facing a well-organized pack of
hedge funds that scooped up the debt at distressed levels and appears deter-
mined to extract maximum value in the courts...[CONTINUE READING]

Puerto Rico News Digest For August 3, 2015

PR PUBLIC FINANCE CORP DEFAULTS 

From Bloomberg:

A Puerto Rico agency is poised to default Monday, initiating a clash with cre-
ditors as the struggling commonwealth seeks to renegotiate its $72 billion debt
load. The government doesn’t have the money for the $58 million of principal
and interest that was due Aug. 1 on Public Finance Corp. bonds, Victor Suarez,
the chief of staff for Governor Alejandro Garcia Padilla, said during a press con-
ference July 31 in San Juan. The financing corporation’s obligation is part of $
597 million of debt-service payments that the common-wealth and its agencies
owe this month. It would mark the first payment default by a Puerto Rico entity.

O'MALLEY SPEAKS ON PR CRISIS

From Caribbean Business:

Former Maryland Gov. Martin O'Malley, a Democratic presidential candidate,
arrived Friday night in Puerto Rico, making it his fourth time on the island in the
past two years[...]In Puerto Rico, he intends to reiterate his position regarding the
island’s exclusion from the federal bankruptcy code’s chapter 9 protections and
local Medicare payment rates. The presidential candidate reportedly supports a-
llowing Puerto Rico to declare bankruptcy and backs the island’s call for federal
healthcare reimbursement-rate parity with the U.S. mainland. O'Malley told the
Associated Press that Puerto Rico should receive the same benefits as the U.S.
He said that Wall Street, forces on the mainland and a Republican Congress were
treating the island unfairly.

TOWNS IN EXTREME DROUGHT TRIPLE

From The San Juan Daily Star:

Natural and Environmental Resources (DNER) Secretary Carmen Guerrero Pé-
rez said Thursday the United States Drought Monitor increased the number of
island municipalities under the extreme drought classification to 20 as 2.5 mi-
llion people in 74 towns are living under diff erent drought categories...The 20
Puerto Rico municipalities under extreme drought are now Arroyo, Caguas, Ca-
nóvanas, Carolina, Cayey, Cidra, Fajardo, Guayama, Guarabo, Juncos, Las Pie-
dras, Luquillo, Maunabo, Naguabo, Patillas, San Lorenzo, Río Grande, Salinas,
Trujillo Alto and  Yabucoa.

WATER RESERVOIR LEVELS FOR TODAY

From AAA. Click graph to enlarge.

UPDATE: 48-hour rationing will start for customers of the La Plata reservoir
starting this coming Wednesday, August 5th.

Puerto Rico Unable to Make August Debt Payback

TeleSur

The Caribbean island owes US$73 billion to creditors. Analysts warn the 
crisis in Puerto Rico could be worse than Greece’s. 

Puerto Rico will not pay off its US$93.7 million debt installment due Aug. 1 to
the Puerto Rico Public Financing Corporation (CFP), the Caribbean island’s chief
of staff announced Monday. Victor Suarez told journalists in San Juan that the Pu-
erto Rican government was looking into the possibility of obtaining some US$400
million through raising gasoline prices, in order to pay back the US$73 billion debt
owed to creditors. "We are trying to achieve a smaller transaction with reasonable
terms of some $400 to $500 million," Suarez said, according to Reuters. Suarez a-
dded that the island would do everything possible to guarantee the debt due to be
paid to the CFP, a subsidiary of the U.S. territory's Government Development
Bank. The small island...[CONTINUE READING]

Hedge funds tell Puerto Rico: lay off teachers and close schools to pay us back

Report commissioned by 34 hedge funds says government had been ‘massively 
overspending on education’ despite spending only 79% of US average per pupil

The Guardian

Rupert Neate


Billionaire hedge fund managers have called on Puerto Rico to lay off teachers
and close schools so that the island can pay them back the billions it owes.

The hedge funds called for Puerto Rico to avoid financial default – and repay its
debts – by collecting more taxes, selling $4bn worth of public buildings and dras-
tically cutting public spending, particularly on education.

The group of 34 hedge funds hired former International Monetary Fund (IMF)
economists to come up with a solution to Puerto Rico’s debt crisis after the is-
land’s governor declared its $72bn debt “unpayable” – paving the way for bank-
ruptcy.

The funds are “distressed debt” specialists, also known as vulture funds, and se-
veral have also sought to make money out of crises in Greece and Argentina, the
collapse of Lehman Brothers and the near collapse of Co-op Bank in the UK.

The report, entitled For Puerto Rico, There is a Better Way, said Puerto Rico could
save itself from default if it improves tax collection and drastically cuts back on pu-
blic spending...[CONTINUE READING]

Governor Creates Debt Work Group

From News Is My Business:

Puerto Rico Gov. Alejandro García-Padilla announced Monday a multi-pronged
plan to address the island’s fiscal crisis to work with creditors on restructuring
what he described as the “unpayable” $73 billion debt.

During a televised speech, García-Padilla said a group — comprised of Chief
of  Staff Víctor Suárez, Government Development Bank President Melba A-
costa, Justice Secretary César Miranda, Senate President Eduardo Bhatia and
House Speaker Jaime Perelló — will be tasked with striking up “conversations
to achieve, with transparency and consensus, the restructuring of our public
debt.”

“The ultimate goal is a negotiated agreement with bondholders for a deferrment
of payments on the debt for a number of years so that the money can be invested
here in Puerto Rico,” he said...[CONTINUE READING]

Government Furloughs Expected As Bond Deadline Nears

Bloomberg

Michelle Kaske

Representative Rafael Hernandez, chairman of the House Treasury Committee.

Time is running out for Puerto Rico. The island’s government needs to
start unpaid furloughs of its workers to make a July payment on its junk-
rated bonds, the chairman of the House’s Treasury Committee said. The
Caribbean territory of 3.5 million people faces a $630  million payment
on its general-obligation bonds on July 1, according to Sergio Marxuach,
public-policy director at the Center for a New Economy in San Juan. To
make that payment, the government will need to start furloughing public
workers because the island’s constitution stipulates that revenue must first
be used to repay general-obligation debt, Representative Rafael “Tatito”
Hernandez said in an interview...[CONTINUE READING]