Puerto Rico Bank Gets Court Blessing to Restructure Debt

(Bloomberg) -- The federal judge overseeing Puerto Rico’s record bankruptcy approved a plan to restructure debt of the former Government Development Bank, the first court authorization for a workout of a commonwealth debtor since the island began defaulting on its obligations in 2015.

U.S. District Court Judge Laura Taylor Swain Tuesday blessed the plan to write down about $4 billion of GDB debt after bondholders authorized the deal in September, according to Puerto Rico’s oversight board. While the bank never filed for bankruptcy, as the commonwealth did last year, it sought a debt restructuring through a process called Title VI under the federal law that allows Puerto Rico to cut its obligations.

“The Court’s approval represents a major milestone in the restructuring of Puerto Rico’s debt obligations,” said Natalie Jaresko, the board’s executive director. “We congratulate the government of Puerto Rico for their effort and look forward to our continued efforts to achieve other consensual deals,” she added.

It’s the first time Swain has approved a debt restructuring for a commonwealth entity. Puerto Rico is seeking to reduce most of its $74 billion of debt. The federal board has filed documents to the court seeking a write down of the island’s sales-tax bonds. Officials are also working on restructuring Puerto Rico’s general obligations and debt sold by its main electric utility.

The bank served as a fiscal adviser to the island’s government. It also allowed Puerto Rico to rack up debt by extending loans to cover the commonwealth’s operating expenses.

Bondholders would receive 55 cents on the dollar for new bonds with an interest rate of 7.5 percent. GDB bonds maturing in 2023 traded Tuesday at an average price of at 48.5 cents on the dollar, according to data compiled by Bloomberg.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, Michael B. Marois

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