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Puerto Rico poised to default on GOs 1 July, local bondholders mobilize
By Xavira Neggers Crescioni and Andrew Scurria
March 2, 2016
Without a restructuring framework from US Congress, Puerto Rico will default on its
USD 780m in general obligation bonds that mature 1 July as well as on other credits,
Governor Alejandro Garcia Padilla said today.
We dont have the money to pay GOs on 1 July, nor the other credits that come due,
said Garcia Padilla said during a press conference to discuss the Government
Development Bank for Puerto Ricos (GDB) default on USD 367m in principle of
USD 423m in GDB principle and interest due today.
It will be up to institutions that produce their own revenue -- such as the University of
Puerto Rico, Puerto Rico Aqueduct and Sewer Authority, Employee
Retirement System, Municipal Finance Authority, Puerto Rico Electric
Power and Puerto Rico Convention Center Authority -- whether they make
upcoming debt service, the governor said.
Congress has to act to give us a viable restructuring network because a voluntary
restructuring is going to be as complicated as it has been up to date, Garcia Padilla said,
adding it will take much longer to resolve island credit structure through a voluntary
restructuring.
PRIFA on the road to default
Yesterdays (1 May) executive moratorium on all GDBs debt also places a one-year
moratorium on the payment on USD 471m in Series 2011B revenue bonds the Puerto
Rico Infrastructure Authority (PRIFA) issued to finance Puerto Rico Ports
Authority Projects.
This commonwealth included this tranche of PRIFA debt because, under the bonds
covenant, holders of this debt could have accelerated against all of the GDBs assets if the
executive order had not included them in the moratorium, Garcia Padilla said.
Its a moratorium on these bonds, not all PRIFA bonds, said Garcia Padilla, adding
yesterdays executive order also declared at state of emergency at this agency.
GDB restructuring talks continue
The group of island credit unions that hold GDB notes, also known as G25, agreed for a
one-year moratorium on USD 33m in principle of todays payment in exchange for the
bank to continue paying interest on these notes. As a result of the deal, the GDB paid out
USD 23m in interest to all holders of notes that came due today, GDB President and
Chairwoman Melba Acosta said today.
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The GDB issued a release stating the GDB Ad Hoc group of bondholders, which owns
another USD 120m of the notes that came due 1 May, granted the GDB 30-day grace
period to continue these negotiations in the hopes of reaching a deal, under the
following terms. The accord in the works a five-year moratorium on principle payments,
with continued, amended interest payments.
The one point of contention with the Ad Hoc group, which they raised Saturday, was
the 53 cents on the dollar payback in the overall larger debt restructuring, whether be
that a super-bond or another vehicle, Acosta said.
The GDB Ad Hoc holds USD 900m while local credit unions hold USD 500m of the
banks outstanding USD 3.8bn in notes. On-island stakeholders own the vast majority of
the remaining USD 2.4bn in notes outstanding, specifically those owned by closed-end
mutual funds at UBS and other island financial institutions, Acosta said.
We are willing to offer similar terms provided the credit unions to other local
stakeholders, said Acosta, adding she had met with various on-island financial
institutions and they were not interested.
The GDBs restructuring legal advisor Millstein & Co. had a conference call today
regarding extending terms from the credit union deal to local retail investors holding the
1 May CUSIP, a source told Debtwire Municipals.
Jenni Main of Millco declined comment on whether the co-op deal would also be offered
to retail investors. The deal on the 1 May bond needs 100% approval to go through,
Acosta said.
Bonistas del Patio steps up
But Bonistas del Patio is interested in a deal that maintains interest payments in lieu of
deferrals in principle, said former GDB President Jorge Irizarry, a representative for the
on-island Ad Hoc group that represents individual holders of USD 1bn of the USD 14bn
in Puerto Rico debt held on island.
We havent reviewed the specific terms of the credit union deal so we dont have an
official position on that yet, Irizarry told Debtwire Municipals, adding he met with
commonwealths Fiscal Agent and Secretary of State 29 April to discuss his groups role.
He promised us a seat at the table as soon as we develop our own proposal. This now is
our top priority, said Irizarry, adding that his group had only been formally constituted
for one week.
Bonistas del Patio plans to expand its constituency as there are some 60,000 on-island
stakeholders who own USD 14bn or approximately 20% of Puerto Rico's outstanding
debt, Irizarry said.
"We are a primary stakeholder group and need to be at the negotiating table," he said.

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The benchmark USD 3.5bn tranche of 2014 general obligation bonds that mature in
2035 and were issued at 93 to yield 8.727% last traded today in odd lots at 65 with
12.991% yield, Electronic Municipal Market Access reported.
The GDBs USD 400m tranche Series 2011B senior notes that were issued at par and
came due today last traded in round lots at 32 cents on 11 March, according to EMMA.

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