Puerto Rico’s Governor Ricardo Rosselló Nevares announced that the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF, for its Spanish acronym), on behalf of the Puerto Rico Industrial Development Company (PRIDCO), entered into a restructuring support agreement (RSA) with GoldenTree Asset Management (GoldenTree), holder of over two-thirds of the outstanding PRIDCO revenue bonds (the PRIDCO Bonds). The RSA contemplates a financial restructuring of the PRIDCO Bonds through a Qualifying Modification (the Qualifying Modification) under Title VI of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).
If the Qualifying Modification is approved and implemented, PRIDCO will establish a new, bankruptcy remote subsidiary (New Issuer) and transfer certain properties within the PRIDCO portfolio to New Issuer (the Trusteed Properties). In turn, PRIDCO Bondholders will exchange the PRIDCO Bonds for special revenue bonds issued by New Issuer and secured by New Issuer’s revenues, including all revenues of the Trusteed Properties. The New Issuer will be overseen by an independent board of directors and the Trusteed 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 Qualifying Modification—which allows PRIDCO to retain cash generated by the Trusteed Properties that is currently held by PRIDCO (subject to a consent fee paid to the RSA parties and implementation of the restructuring) and the revenues received through the two-year principal moratorium—will provide PRIDCO with the necessary liquidity 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. Finally, by proceeding under Title VI of PROMESA with the support of over two-thirds of PRIDCO’s bondholders, the Government believes in its judgment that 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 Qualifying Modification remains subject to certification by the Financial Oversight and Management Board for Puerto Rico and approval by the United States District Court for the District of Puerto Rico and agreement on definitive documentation.
“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. On behalf of AAFAF and the Administration, I want to express my gratitude to PRIDCO and its major constituents for working to reach this result. 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,” said Christian Sobrino, Executive Director of AAFAF.
The Secretary of the Department of Economic Development and Commerce, (DEDC) Manuel A. Laboy Rivera, said “we are pleased with the outcome of the negotiations.” He also explained that “this restructuring puts PRIDCO in a position to be financially sustainable, if the operational restructuring is fully executed. 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.”
GoldenTree released the following statement: “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. 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.”
AAFAF 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.