NEW YORK (Reuters) - Puerto Rico’s Government Development Bank, the island’s insolvent former fiscal agent now in wind-down mode, has tweaked its $5 billion debt restructuring deal to help keep small towns afloat six months after Hurricane Maria.
Governor Ricardo Rossello’s office said in a statement on Tuesday that the bank, known as the GDB, will allow towns to offset any loans owed to it with assets on deposit at the bank.
The towns also will be allowed immediate payment of 55 percent of certain assets held at the GDB.
Those concessions are offset by other changes that keep the new structure roughly neutral for creditors, who will receive the same 55 percent repayments they would under the original deal, struck in May.
“The amendment to the RSA (Restructuring Support Agreement)is a significant step forward toward the GDB debt restructuring and the ultimate resolution of GDB,” Rossello said in the statement.
Like the old agreement, the deal splits the GDB into two entities — the first to issue new debt to repay municipal depositors and bondholders, and the second to serve as a public trust for the benefit of other depositors, according to the statement from Rossello’s office.
Under the new deal, the debt-issuing arm will offer a single tranche of debt to all beneficiaries, rather than a choice of three tranches, the statement said.
“I think it’s a win-win arrangement for all parties,” said Rafa Rojo, a spokesman for a group of small bondholders in Puerto Rico, who added the result should be practically the same NPV (net present value) for bondholders who will get 55 percent of their principal value at a 7.5 percent interest rate.
A source familiar with the deal told Reuters about $550 million of assets originally reserved for the public trust will now be moved into the debt-issuing entity, to help offset concessions to municipalities.
The deal still needs agreement from GDB bondholders. It also needs new legislation and approval by the federally appointed oversight board managing the U.S. territory’s finances.
In many rural areas, residents remain without power more than six months after the storm, which decimated infrastructure and killed dozens.
Even before the storm, municipalities were expected to lose subsidies as the central government tries to cut costs after filing the biggest government bankruptcy in U.S. history last year. The island has $120 billion in bond and pension debt.
Migration off the island, compounded by the storms, was felt the sharpest in small towns. According to U.S. Census Bureau data, the towns with the largest population loss between 2016 and 2017 were Lares, Penuelas and Guanica - each of which have populations below 30,000, and which lost about 3 percent in that span.
According to data compiled by Puerto Rico-based think tank Abre PR, those towns have unemployment rates above 20 percent, and at least 55 percent of their work-aged populations were not in the workforce as of 2012.
Puerto Rico’s unemployment rate overall is about 11 percent, nearly three times the U.S. national average.
Reporting By Nick Brown; Editing by Daniel Bases and Bill Trott