Hedge Funds Seek Meeting With Puerto Rico Over Oil-Tax Bond Deal

A group of hedge funds headed by Fir Tree Partners is seeking a meeting with Puerto Rico Governor Alejandro Garcia Padilla and senior officials at the Government Development Bank for Puerto Rico to discuss the potential sale of $2.9 billion in oil-tax bonds.

The steering committee for the investor group sent a letter Wednesday to Garcia Padilla and GDB President Melba Acosta asking for the meeting. A copy of the letter was sent to Bloomberg News by Russ Grote, a spokesman for the investors at Hamilton Place Strategies in Washington.

Proceeds of the bond deal would help repay obligations owed to the GDB, which provides loans to the junk-rated commonwealth and its localities. The bank will run out of cash by Sept. 30 unless the Puerto Rico Infrastructure Financing Authority, also known as Prifa, sells the bonds.

David Millar, a representative for the GDB at Sard Verbinnen & Co in New York, declined to comment.

The hedge funds have been asking for the bonds to have a feature that in the event of a default the debt must be paid in full immediately with future interest costs, Acosta told the Puerto Rico House Treasury Committee on May 30. The group also is proposing a structure that will allow some bonds to be repaid before other debt, Acosta said.

Unacceptable Terms

The GDB may be forced to hold up to $800 million of subordinate bonds if it’s unable to sell the debt, she said. In that case, the proceeds would be “substantially” less than $2 billion, which wouldn’t meet Puerto Rico’s cash needs, Acosta said.

Acosta told the House committee on May 30 in Spanish that the conditions for hedge funds and insurance companies to participate in the bond sale “are not acceptable to the government.”

The investor group, which includes 35 firms holding $4.5 billion of Puerto Rico debt, wrote in the letter that advisers have presented Puerto Rico with terms for the bond deal, but there hasn’t been “substantive engagement” by the commonwealth.

“While there are certain provisions that will be important to our group, we come to the Prifa negotiations with open minds and no set expectations,” the steering committee for the group said in the letter. “We urge you to promptly meet with us in person so that we can engage in a substantive manner for the benefit of all commonwealth citizens and stakeholders.”