Puerto Rico’s Government Development Bank strikes deal on debt burden

Puerto Rico’s once-influential Government Development Bank has won agreement from some of its creditors to cut its debt burden and restructure its obligations.

The organisation, which for years acted as the territory’s primary fiscal agent and evolved into a lender of last resort in times of distress, will transfer its assets into a new entity and issue new bonds in a deal that will see creditors take principal losses of as much as 45 per cent.

The assets to be transferred to the new entity include its loans to Puerto Rico’s municipal governments, property and excess cash, which the government said are worth $5.3bn.

“This agreement is an example that the government is regaining the credibility it had lost over the past few years,” governor Ricardo Rosselló said in San Juan on Monday.

Earlier this year, the GDB said it would liquidate and wind down after falling into insolvency. The organisation counts more than $4bn of indebtedness and has played a central role in Puerto Rico’s ongoing financial crisis. Mr Rosselló triggered the largest bankruptcy filing in the $3.8tn municipal bond market this May, as he seeks to cut the island’s $74bn debt load.

Creditors are set to exchange their ownership in existing GDB bonds for one of three new instruments, which include haircuts of between 25 and 45 per cent. Bondholders who agree to the 45 per cent cut to principal will receive coupon payments of 7.5 per cent per year on the new notes.

Hedge funds including Avenue Capital Management, Brigade Capital Management, Fir Tree Partners and Solus Alternative Asset Management were among the group of creditors that agreed to the deal.