Puerto Rico GDB Seeks 47% Haircut for Bondholders

The Government Development Bank for Puerto Rico is negotiating with investors to reduce the par value of some of its notes by 47%.

The GDB owes $422 million on Monday, a sum Puerto Rico officials have said it won't be paying.

The bank is in negotiations with a group of debt holders who are owed $120 million, GDB president Melba Acosta Febo said, confirming a report in the El Vocero news website. It is seeking a forbearance agreement under which this group would refrain from enforcing debt remedies for a period of time. It is also in negotiation with another group owed a smaller amount of debt.

The terms of at least one deal under negotiation would be that the debt holders would get recoveries as little as 53 cents on the dollar. Certain deals under discussion would involve extending maturities.

"Sometimes you might think that 47% is a big discount, but you have to look at how these notes are being exchanged right now," Acosta Febo said.

On Tuesday Markit reported a block-sized trade of 4.375% taxable 2019 GDB senior notes was made at 23.5 cents on the dollar. This was 1.5 cents lower than Market's estimate for the debt in the preceding five days.

By comparison, Markit estimated Puerto Rico 5% general obligation bond maturing 2041 as trading at 58 cents on the dollar Wednesday, down from a high of 60 cents in the previous week.

Any deal struck with GDB debt holders now will ultimately be part of a larger Puerto Rico debt restructuring, Acosta Febo said. She said she wanted to be sure the numbers would make sense for Puerto Rico.

The debt negotiations came as efforts to pass a bipartisan bill in the U.S. Congress to deal with Puerto Rico's debt crisis faltered. In December House Speaker Paul Ryan directed that a bill be put together for this purpose by May 1. Puerto Rico's nonvoting member in the House Pedro Pierluisi said earlier this week that he expected the House to not act until July. After that point, any bill would still have to be passed by the Senate and signed by the president before becoming law. Even then, it could take time to make the law operational.

Bond analysts said the developing deal for the GDB was unlikely to be a precedent for other Puerto Rico debt.

"The insurers have a lot less presence here," John Mousseau, director of fixed income at Cumberland Advisors said in an email. "They would never be able to do that otherwise. I think [the potential GDB deal] has ZERO shot at being a precedent for other bond holders. How would you take away from [Puerto Rico Sales Tax Finance Corp.] COFINA bondholders revenue that has been pledged to pay bondholders? Bondholders would gladly take their shot in court with any kind of revenue pledge versus 47%."

Howard Cure, directors of municipal research at Evercore Wealth Management, and Municipal Market Analytics partner Matt Fabian agreed that GO, COFINA, and utility bondholders are supported by legal remedies or other factors that will make them less willing to take substantial haircuts.

The offer to the GDB note holders is "fantastic" if the offer is to pay in cash, Fabian said. However, it is not so good if the offer is for new certificates to replace the notes. This is because the financial health and even existence of the GDB is doubtful going forward. Any certificate would be of limited value in the secondary market, he said.

As of August 2015 the GDB had $4.61 billion in debt.



Image:
GDB president Melba Acosta Febo is negotiating a restructuring deal with some GDB debt holders.


By Robert Slavin

Puerto Rico GDB Seeks 47% Haircut for Bondholders

Comments

Post a Comment

Popular posts from this blog

IMF Executive Board Discusses the First Assessment of Eligible Countries under the Multilateral Debt Relief Initiative

On December 21, 2005 the Executive Board of the International Monetary Fund (IMF) established the list of countries that qualify for debt relief from the Fund under the Multilateral Debt Relief Initiative (MDRI). Debt relief delivery, which could start as soon as January 3, 2005, is now conditional on getting the consents of all the contributors to the Subsidy Account of the Poverty Reduction and Growth Facility (PRGF) Trust, whose contributions help finance the Initiative. The MDRI will deliver debt relief from the Fund to qualifying members countries with an annual per capita income at or below US$380, and to countries above the threshold that have reached the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative. The implementation of the MDRI will reduce the external debt burden of a number of the world's poorest countries and will provide additional resources to help them reach the Millennium Development Goals (MDGs). Background The Executive Board appro...
Read more

Oil’s chaotic collapse deepens; stocks drop worldwide

Image
NEW YORK (AP) — Oil prices crumpled even further Tuesday, and U.S. stocks sank to their worst loss in weeks as worries swept markets worldwide about the economic carnage caused by the coronavirus pandemic. The market’s spotlight was again on oil, where prices have plummeted because very few people are flying or driving, and factories have shut amid widespread stay-at-home orders. Global demand is set to drop to levels last seen in the mid 1990s. At the same time, oil producers can’t slow their production fast enough, and all the extra crude means storage tanks are quickly running out of room. The cost for a barrel of U.S. oil to be delivered in June plunged 43% to $11.57. That’s the part of the market that oil traders are focused on and trading most actively. For oil to be delivered next month, which is when storage tanks could top out, the cost of a barrel stood at $10.01. A day earlier, it fell below zero for the first time, meaning traders paid others to take oil off their hand...
Read more

Mapping Extreme Poverty Around the World A new report from the

Image
A new report from the  World Bank  just landed, finding that a record low of 10% of humanity now live in extreme poverty, down from 11% in 2013. But poverty rates aren’t anywhere close to equal between continents or even countries, as our new series of maps clearly demonstrates. The World Bank provides an in-depth explanation for its methodology, which you can find in Appendix A of the full report  here . We focused on the percentage of people in each country living below what the World Bank defines as extreme poverty, or $1.90/day. We’ll let the researchers defend this definition on their own, but there is one caveat to keep in mind. It can be extraordinarily difficult to collect reliable data from so many countries on a regular basis, and in fact we used the latest year in which numbers were available whenever possible. For example, in some of these maps we compare 2011 figures against 2015. In short, our maps provide the clearest possible apples-to-apples compa...
Read more