- Negotiations with bondholders said to begin as soon as Sept. 8
- Officials said to have drafted a non-disclosure agreement
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 has about $5 billion of debt and acts 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 investors shunning 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.
Representatives for the two sides will discuss terms under which the bondholders would inject fresh capital into the bank, the people said. The cash would be raised alongside an exchange of development-bank bonds, the people said.
Restructuring advisers to Puerto Rico have discussed raising between $750 million and $900 million of new money, two of the people said.
The development bank’s 5 percent notes maturing in August 2023 traded Tuesday at an average price of 28.6 cents on the dollar, according to data compiled by Bloomberg. They reached their lowest average of 26.1 cents on Aug. 3.
The bondholder group is comprised of 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.