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Puerto Rico strikes second restructuring deal with bondholders

Puerto Rico reached a restructuring agreement with bondholders invested in the commonwealth's Government Development Bank, officials announced Monday in San Juan.

Parties to the agreement include the Ad Hoc Group of Bondholders, whose members are funds managed or advised by Avenue Capital Management II, Brigade Capital Management, Fir Tree Partners and Solus Alternative Asset Management. The group's financial adviser, Bradley Meyer of Ducera Partners in New York, said in a statement that the agreement “is fair to all parties.”

Puerto Rico's Federal Affairs Administration said in that statement that GDB creditors “have agreed to substantial discounts to the principal,” but did not provide further details on the agreement, which calls for bondholders to exchange claims for one of three tranches of bonds issued by a new municipal entity. The new bonds will have varying principal amounts, interest rates, collateral priority, and other payment terms.

It is the second agreement reached with bondholders and Gov. Ricardo Rossello, following one announced April 6 with holders of bonds issued by the Puerto Rico Electric Power Authority. The PREPA agreement restructures $9 billion in debt by offering them 85 cents on the dollar, and giving PREPA more time to begin making payments.

Restructuring agreements must be approved by the Financial Oversight Management Board and the U.S. District Court in San Juan. Mr. Rossello said in the statement that the agreement “is an example that the government is regaining the credibility it had lost over the past few years.”