The government of Puerto Rico announced it has entered into a restructuring support agreement for $165 million in Puerto Rico Industrial Development Company debt with GoldenTree Asset Management, holder of over two-thirds of the agency’s outstanding revenue bonds.
The RSA contemplates a financial restructuring of the PRIDCO Bonds through a Qualifying Modification under Title VI of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), the Fiscal Agency and Financial Advisory Authority announced.
If the Qualifying Modification is approved and implemented, PRIDCO will establish a new, separate subsidiary to be known as the “New Issuer” and transfer certain properties within the PRIDCO portfolio there.
In turn, PRIDCO bondholders will exchange their credits for special revenue bonds issued by the New Issuer and secured by the New Issuer’s revenues, including all revenues of the properties to be shifted.
The New Issuer will be overseen by an independent board of directors and the properties will be managed by a professional asset manager to be approved by the government and a majority of the supporting bondholders following a request for proposals process.
In exchange, bondholders will accept a reduction to the principal of the PRIDCO Bonds — which will be exchanged at an upfront exchange ratio of 94% — a maturity extension, and a two-year moratorium on payments of principal.
“The RSA is the result of extensive negotiations and represents what can be achieved when parties are willing to negotiate in good faith and reach solutions amenable to the needs of the parties,” said Christian Sobrino, executive director of Fiscal Agency and Financial Advisory Authority.
“The RSA represents an important step in PRIDCO’s goal of achieving an operational restructuring and furthering its mission of supporting the economic development of Puerto Rico,” he said.
Through the agreement, PRIDCO will be able to retain cash generated from the properties that will be transferred to the new entity, as well as the revenues received through the two-year principal moratorium. That liquidity will be used to fund an operational restructuring, including past due and ongoing PayGo obligations, and focus its efforts on certain long-term initiatives.
The transaction also advances an “important priority of the administration by establishing a more efficient government structure through separating development activities from property management activities,” government officials said.
Finally, by proceeding under Title VI of PROMESA with the support of over two-thirds of PRIDCO’s bondholders, the government believes it will “realize its objective of maximizing value for PRIDCO’s stakeholders while avoiding the delay, expense, and uncertainty associated with an adjustment of debts in a case under Title III of PROMESA.”
The agreement is still subject to certification by the Financial Oversight and Management Board for Puerto Rico and approval by the U.S. District Court for Puerto Rico.
“This restructuring puts PRIDCO in a position to be financially sustainable, if the operational restructuring is fully executed,” Department of Economic Development and Commerce Secretary Manuel A. Laboy said.
“In addition, the restructuring enables PRIDCO to provide funding for past due and future PayGo obligations, allows for more efficient government structure by separating development activities from property management activities, and avoids costly litigation with bondholders and a potential Title III, among other benefits,” Laboy said.
The Fiscal Agency and Financial Advisory Authority and PRIDCO were assisted in the negotiations by O’Melveny & Myers LLP and Pietrantoni Mendez & Alvarez, LLC, as legal advisors, and Ankura as financial advisor.
GoldenTree was assisted in the negotiations by Latham & Watkins LLP and Reichard & Escalera, LLC as legal advisors.
“We appreciate the hard work and constructive approach demonstrated by the government of Puerto Rico to successfully restructure PRIDCO, an important governmental entity that has facilitated economic development and job creation on the island since 1942,” GoldenTree said in a statement.
“This agreement will put PRIDCO in a position to play a continued role in the future economic growth of Puerto Rico, benefitting all stakeholders, including most importantly, the people of Puerto Rico,” it added.