Puerto Rico Development Bank Said Preparing to Start Debt Talks

Puerto Rico development bank officials are preparing to enter confidential debt restructuring talks with a group of the agency’s bondholders as soon as next week, said three people with knowledge of the matter.
The Government Development Bank, which hasabout $5 billion of debt andacts as a lender to the U.S. territory and its local governments, has drafted a non-disclosure agreement that would govern talks with a bondholder group represented by law firm Davis Polk & Wardwell LLP, said the people, who asked not to be named because the information is private. Puerto Rico representatives will ask some of the creditors to sign the agreement in order to start negotiations as soon as Sept. 8, the people said.
The bondholder group, which hired financial advisory firm Ducera Partners to represent it in July, is one of at least four major sets of creditors who’ve formed alliances in order to negotiate with the commonwealth and its agencies over how to restructure $72 billion of debt. Most of the discussions have been on hold until officials in the U.S. territory release a plan that’s expected to introduce economic reform and address a debt restructuring.
With traditional municipal-debt investorsshunning its bonds, the island faces a cash crunch.Governor Alejandro Garcia Padilla’s office said Aug. 17 that the GDB had $1.1 billion of liquidity, down from $2 billion reported in October. The GDB also will be running up against a Dec. 1 deadline to pay $354 million owed to bondholders, according to data compiled by Bloomberg.
Barbara Morgan, a spokeswoman for the GDB at SKDKnickerbocker, declined to comment, as did Adam Verost, a spokesman for Ducera. Susan Peters, a spokeswoman for Davis Polk,didn’t immediately return messages seeking comment.
Cash Injection
Representatives for the two sides will discuss terms under which the bondholders would inject new capital into the bank, the people said. The cash would be raised alongside an exchange of development-bank bonds, the people said.
The bondholder group comprises at least seven firms, including Avenue Capital Management, Brigade Capital Management, Candlewood Investment Group and Fir Tree Partners, the people said. Perry Corp. dropped out of the main part of the group, they said.
Representatives for Avenue, Brigade,Fir Tree and Perry declined to comment. A representative for Candlewood didn’t immediately respond to messages seeking comment.
Signing a non-disclosure agreement is typically required ahead of restructuring negotiations because bond issuers want to bar participants from sharing private information that could affect market prices. The information is released publicly after a deal is reached or, if one isn’t, the discussion material is disclosed according to terms in the accord.
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Puerto Rico Development Bank Said Preparing to Start Debt Talks

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