Puerto Rico Development Bank Strikes Creditor Deal

By Andrew Scurria Features Dow Jones Newswires

Puerto Rico's insolvent industrial development bank announced a deal with creditors on how to distribute proceeds from its 10-year liquidation plan.

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Gov. Ricardo Rosselló announced Monday that the Government Development Bank for Puerto Rico had reached an agreement with hedge fund bondholders and municipal depositors surrounding the terms of its wind-down.

It marks the second consensual settlement between Puerto Rico and its creditors. The public electricity monopoly known as Prepa has also struck a voluntary restructuring agreement that remains pending.

The federal oversight board managing Puerto Rico's finances last month ordered the bank, which for decades acted as the U.S. territory's fiscal agent and government lender of last resort, to liquidate over the next decade and seek a consensual deal with creditors owed $4 billion.

The oversight board and a federal judge must give their approval for the deal to become effective. Under its terms, the bank's municipal loans, real estate and cash on hand would be used to back three series of new bonds.

Creditors and certain depositors would receive one of those three restructured bonds representing 55, 60 or 75 cents on the dollar of their existing claims. The bonds would bear interest between 3.5% and 7.5%.

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Bradley Meyer, a financial adviser to bank bondholders including Avenue Capital Group, Brigade Capital Management LP, Fir Tree Partners and Solus Alternative Asset Management LP, said the creditor group "looks forward to the completion of definitive documentation and the prompt implementation" of the deal.

The bank's debt pile is a fraction of Puerto Rico's $73 billion in bond debt, accumulated through years of borrowing to finance budget deficits against a diminishing tax base.

The oversight board has begun court-supervised bankruptcy proceedings for Puerto Rico's $13 billion in general obligation bonds and $17 billion in sales-tax bonds. Under federal law, Puerto Rico can restructure its debt by consent -- or by force, if negotiations fail.

Bondholders and the board are scheduled to meet in court for the first time on Wednesday to begin what could be a long and expensive legal proceeding.

Write to Andrew Scurria at Andrew.Scurria@wsj.com

(END) Dow Jones Newswires

May 15, 2017 12:01 ET (16:01 GMT)