The Government Development Bank for Puerto Rico (GDB) [official website] announced its agreement [press release, PDF] with various state chartered credit unions in Puerto Rico whereby the maturity date of approximately $33 million of notes issued in a limited private exchange will be extended by one year to May 1, 2017. According to GDB’s statement the private exchange was originally established to address the “unique financial considerations” of the credit unions, and apart from this agreement, GDB was still negotiating a deal with other creditors to avoid a default on another $422 million due [Reuters report] on Monday. GDB’s statement further stated it is continuing its efforts to strike a deal on a transaction related to an exchange of all of GDB’s bond indebtedness totaling approximately $4 billion, which would require the participation of all of GDB’s creditors including the credit unions. However, this particular agreement does not affect those ongoing negotiations. GDB has also been negotiating with hedge funds such as Fir Tree, Solus and Claren Road to prevent a default that has the potential to worsen Puerto Rico’s recession. The notes here were initially expected to mature on Sunday, but the new agreement has given GDB a breathing space of one year to get its act together. However, Governor Alejandro Garcia Padilla stated that “there will be a default on Monday” in connection with the other payments coming due. Any default here is likely to pressure Congress to intervene but federal lawmakers disagree on whether to put Puerto Rico’s finances under federal oversight.
Puerto Rico has been in a state of economic and social crisis characterized by a decade-long recession, 45 percent poverty rate and shrinking population. The Puerto Rico legislature passed a bill [JURIST report] earlier this month that would allow the island territory to enter into a state of fiscal emergency and begin the negotiation process toward a one-year debt moratorium. That bill [text, PDF, in Spanish] was primarily and directly concerned with paving the way for the above-mentioned debt deals. At the end of 2015, Puerto Rico was $70 billion dollars in debt. The governor previously anticipated a government default [Bloomberg report] in 2016, which came to fruition [NYT report] on January 4. The territory has been suffering from a massive recession [BBC report] since 2006, nearly a decade before Padilla announced that Puerto Rico was unable to pay its debts. However, the Puerto Rico Electronic Power Authority, a major player in the economic crisis, reached a deal [Bloomberg report] to restructure its debt in December. This deal is the first of many restructuring plans to alleviate the government’s debt. In February, the Puerto Rico Legislature passed a bill [text, PDF, in Spanish] that would restructure the island’s debt, which was then estimated to be $9 billion [JURIST report].