Citigroup Said Courting Puerto Rico Creditors for Debt Talks

Updated on
  • Bank said to contact hedge-fund investor group for discussions
  • Talks would address how to restructure development bank's debt

Citigroup Inc., which is helping to oversee the financial restructuring of Puerto Rico’s development bank, is reaching out to a group of large bondholders to lay the ground work for confidential debt talks, according to two people with knowledge of the matter.

The New York-based bank is seeking to establish goals for negotiations that would rope in as many as seven hedge funds that own the debt issued by the Government Development Bank for Puerto Rico, said the people, who asked not to be named because the information is private. The Puerto Rico government unveiled its restructuring outline on Wednesday.

Citigroup is the lead broker-dealer for the reorganization of debt issued by the GDB and other parts of the U.S. territory, meaning it’s responsible for structuring the obligations and facilitating the transactions. It has been talking with members of a group of bondholders represented by the law firm Davis Polk & Wardwell LLP and the financial advisory firm Ducera Partners, the people said.

The group is comprised of Avenue Capital Management, Brigade Capital Management, Candlewood Investment Group, Claren Road Asset Management, Fore Research & Management, Fir Tree Partners and Solus Alternative Asset Management, the people said. Representatives for each of the investment firms declined to comment.

Development bank representatives want to establish parameters for a planned debt exchange and avoid a failed negotiation that would result in the early release of information that’s currently confidential, the people said.

Scott Helfman, a spokesman for Citigroup, declined to comment. Barbara Morgan, who represents the GDB at SKDKnickerbocker in New York, declined to comment on Citigroup’s discussions with bondholders.

Debt Rallying

The development bank, which has about $5 billion of debt and serves as a lender to the territory and its local governments, has already drafted a non-disclosure agreement that would govern talks with the bondholder group, people with knowledge told Bloomberg last week. The debt discussions would start as soon as investors sign the accord.

GDB debt has rallied as officials have been preparing for discussions with bondholders. The most actively traded security, the 4.375 percent notes maturing February 2019, rose 2.5 cents Thursday to an average of nearly 38.7 cents on the dollar, according to data compiled by Bloomberg. The notes have gained almost 5.9 cents from Tuesday, the data show.

The 5 percent notes maturing August 2023 rose 3.4 cents to an average of 32.1 cents on the dollar Wednesday, the highest in nearly two months, the data show.

Negotiations over how to reduce the development bank’s borrowings would be the first talks since Puerto Rico’s government said in its proposal released Wednesday that it would seek to force losses on most debt investors. Melba Acosta, the island’s main debt official and president of the GDB, said she would ask for a moratorium on principal payments owed to investors for several years. Puerto Rico has $72 billion in outstanding borrowings.

The commonwealth considers unveiling the plan “the first step in a constructive dialogue” with creditors, GDB spokeswoman Morgan said in an e-mailed statement. “We are moving forward with our efforts to collaborate with them on solutions to the fiscal issues facing the commonwealth.”

— With assistance by Michelle Kaske

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