Bonds

Puerto Rico ends talks with bondholders as deadline looms

The Government Development Bank for Puerto Rico has ended talks with a group of its bondholders and their advisers after failing to reach a deal on restructuring the debt.

Melba Acosta, president of the Government Development Bank for Puerto Rico, testifies in Washington, Sept. 29, 2015.
Lauren Victoria Burke | AP

The GDB, the fiscal agent of Puerto Rico's government, said in a statement on Wednesday that it had decided to walk away from talks after "the discussions did not result in a mutually acceptable arrangement." The talks "are no longer continuing," the GDP said. The GDB is responsible for making payments for Puerto Rico-government issued bonds.

The discussions began after the bank presented a debt exchange proposal to an ad hoc group of bondholders on Sept. 30, according to documents filed by the GDB. Those documents were made public within the terms of a confidentiality agreement after talks between the parties were terminated.

The president of the GDB, Melba Acosta, said in the statement that the GDB is still engaging with other creditors "to achieve a comprehensive path forward," and that the bank has "begun the process of signing nondisclosure agreements and initial due diligence with a number of creditors."

People look at the job listings posted at an unemployment office in San Juan, Puerto Rico.
Here's why Puerto Rico's broke
The Puerto Rican Capitol in San Juan
Puerto Rico plan still leaves $12 billion gap

Time is running out for the GDB to strike a deal with the holders of its paper, as it faces a $354 million debt payment due on Dec. 1. Absent a restructuring agreement, the island may not have the money to make the payment.

In September, at a hearing held by the U.S. Senate Finance Committee, Acosta testified that Puerto Rico faces an immediate liquidity crisis.

"Without access to the capital markets to refinance maturing debt, Puerto Rico may run out of emergency measures by the end of this year … threatening the ability of the government to continue to provide essential services to its residents and to pay its debts when due," she said.

Not helping matters is the complexity of Puerto Rico's debt structure. There are approximately 18 unique bonds issued by Puerto Rican government entities, all with varying degrees of solvency and protections under the law. On one end of the spectrum are the General Obligation ("GO") bonds, with payments constitutionally backed by the full faith, credit and taxing power of Puerto Rico.


Impact of Puerto Rico's debt
VIDEO2:1402:14
Impact of Puerto Rico's debt

On the other end of the spectrum are appropriated bonds, like the Public Finance Corp. ("PFC"), a subsidiary of the Government Development Bank, which defaulted on its debt in August when it failed to make the full $58 million payment due to bondholders. Since that historic default, the PFC has missed two other consecutive payments due on Sept. 1 and Oct. 1, according to documents filed by its trustee.

The two top officials from Puerto Rico — Gov. Alejandro Garcia Padilla, and the congressional representative for the commonwealth, Pedro Pierluisi — are set to testify at a Senate hearing on Thursday about the future of the island's economy and debt, and its options for moving forward.

Also due to speak as a witness will be Counselor to the Secretary Antonio Weiss, the third-ranking official at the Treasury Department.

The U.S. Senate Committee on Energy and Natural Resources hearing is scheduled for 10 a.m. ET.