Puerto Rico gov't bank misses payment, talking with creditors

Puerto Rico defaults on $370 million debt payments

SAN JUAN/NEW YORK (Reuters) -- Puerto Rico's Government Development Bank said it reached a tentative debt restructuring framework with some of its major creditors, just hours after declaring it will skip making a $422 million bond payment due on Monday.

The framework is "a vital first step" that needs both restructuring legislation from the U.S. federal government and participation from all of the GDB's creditors in order to work, the bank said in the statement issued late on Sunday.

RELATED: The cities around the world with the worst quality of life

29 cities around the world with the worst quality of life
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Puerto Rico gov't bank misses payment, talking with creditors

29. Karachi, Pakistan

It's the largest and most populous metropolitan city in the world but is also one of the most violent. Kidnapping, violent crime, and muggings are commonplace.

(Photo courtesy: Getty)

28. Tehran, Iran

Sanctions have only just been lifted on the country but Tehran has high poverty levels, social instability, and murder. Kidnapping, theft, fraud, money laundering, and drug trafficking are just some of the regular crimes committed in the country's capital.

(Photo by Fatemeh Bahrami/Anadolu Agency/Getty Images)

27. Lome, Togo

The city is the largest in Togo and holds high unemployment rates. Its infrastructure is also deteriorating and the African nation faces problems with living conditions and rubbish collection.

(Photo courtesy: Getty)

26. Tashkent, Uzbekistan

The capital in the central Asia country has become a hotbed for terrorism over the last year. In 2015, the US embassy in Tashkent was attacked for the first time in 11 years and the government is trying to counteract growth in Islamic extremism.

(Photo courtesy: Getty)

25. Abidjan, Cote D'Ivoire

It's the economic capital of the Ivory Coast but the British embassy has issued warnings against anyone travelling there unless essential. It said "violent crime can occur at any time" and that the city, and the country, has a "high threat of terrorism."

(SIA KAMBOU/AFP/Getty Images)

24. Addis Ababa, Ethiopia

The capital city is going through a building boom but many of its citizens are suffering from extreme poverty. On top of that, social friction between the government and its citizens is high, especially after protests over building plans killed students and farmers.

(Photo by Mohammed Abdu Abdulbaqi/Anadolu Agency/Getty Images)

22. Harare, Zimbabwe

The capital, as well as the rest of the country, suffers from an oppressive government led by Robert Mugabe. The city is also poverty stricken and millions of citizens are starving due to 75% of maize crops failing, prompting Mugabe to appeal for £1.2 billion ($1.6 billion) to help pay for grain and other food.

(Photo courtesy: Getty)

21. Bishkek, Kyrgyzstan

Poverty is high in the economic centre of the country. Meanwhile, the government is battling continual attacks from members of Islamic State — also known as ISIS and Daesh.

(Photo by Nezir Aliyev/Anadolu Agency/Getty Images)

20. Lagos, Nigeria

The country's largest city battles environmental threats, such as riptides, annually. Citizens are also under continual threats to their personal safety, including the kidnapping of students and murder.

(Photo courtesy: Getty)

19 (joint). Abuja, Nigeria

The city, like Lagos, suffers from high crime rates from inter-communal violence. The British Foreign Office tells travelers: "You could get kidnapped or find yourself caught up in a terrorist or other violent incident."

(Photo courtesy: Getty)

19 (joint). Dushanbe, Tajikistan

Poverty and energy shortages are a huge issue for the city and country as a whole. The World Bank also warns that doing business there is difficult due to the inadequate infrastructure.

(STR/AFP/Getty Images)

No. 17. Dhaka, Bangladesh

Dhaka is one of the world's most populated cities, and its garment exports bolsters its economy. But working conditions and human rights, as well as local poverty for many citizens, are criticized and under scrutiny by world governments and charities.

(Photo courtesy: Getty)

16. Ouagadougou, Burkina Faso

The city is under continual threat of terrorist attacks and earlier this year, an Al-Qaeda bombing on a popular hotel killed 29 people.


15. Tripoli, Libya

The city was carved up by two rival warlords last year and even the main airport was destroyed in the summer of 2015 and all the main embassies have been closed down. Migrants and refugees are also flooding into the country due to its proximity with Europe.


14. Niamey, Niger

Protests, governmental corruption, and local poverty place this city onto the list.

(Photo courtesy: Getty)

13. Antananarivo, Madagascar

The city, and the rest of the country, depends on agriculture for its economic growth. However political instability hinders any chance of continuous development.

(Photo courtesy: Getty)

12. Bamako, Mali

The city was rocked by terrorist attacks last year when Islamist militants took 170 hostages and killed 20 of them in a mass shooting at the Radisson Blu hotel.

(Photo courtesy: Getty)

11. Nouakchott, Mauritania

The city was originally a small village of little importance until 1958 until growing rapidly into one of the biggest cities in the Sahara. However, overcrowding, droughts, and poverty have helped fill the city with slums.

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10. Conakry, Guinea Republic

The port city is riddled with personal safety issues. Violent crime, protests, and strikes wreak havoc in Conakry.


9. Kinshasa, Democratic Republic of the Congo

Ethnic nationalist conflict is rife in the city and NGOs have tried to step in to provide aid and food relief to the city and the rest of the country.


8. Brazzaville, Congo

Government corruption has triggered huge protests in the city which led to a number of people being killed by the police.


6. N'Djamena, Chad

The city in one of the world's poorest countries has suffered at the hands of militant Islamist group Boko Haram. The group carries out frequent suicide bombings in the city.

(BRAHIM ADJI/AFP/Getty Images)

5. Khartoum, Sudan

It's the second largest city in Sudan and is a key recruiting ground for ISIS.

(Photo courtesy: Getty)

4. Port Au Prince, Haiti

The city is rife with violent crime and is dangerous for travelers. Rapes and robberies are common and there is a worrying growth in vigilante violence.

(Photo courtesy: Getty)

3. Sana'a, Yemen

The largest city in Yemen has been devastated by airstrikes from Saudi Arabia as the country has become a battleground in the proxy war between Iran and Saudi Arabia.

(Photo courtesy: Getty)


Talks between the GDB and some of its major creditors, who call themselves the Ad Hoc Group and hold roughly $935 million of GDB debt, will continue for the next 30 days. The creditors said in a statement on Monday they would not pursue legal action during that time, although that does not preclude smaller investors from filing lawsuits.

The GDB default is the most significant yet in Puerto Rico, because the bank acts as the main depositary and liquidity source for public agencies like the island's highway and infrastructure authorities.

The GDB said it reached indicative terms of a deal with the creditor group holding about a quarter of the nearly $4 billion in bonds. The group would agree to a two-step debt exchange, ultimately recouping about 47 percent of what they are owed.

"The financial concessions contemplated by the proposed restructuring are intended to help stabilize the operations of GDB and to support the Commonwealth's efforts to restructure its other financial obligations," the creditors said.

One major investor, who requested anonymity while talks are under way, said there is discussion over reducing the need for 100 percent of creditors to agree to the terms.

"If we can get that down to 95 percent participation or so, we think we can get there, without any federal legislation," the investor said.

A second investor, not involved in the talks, said they were waiting to see how any deal would work and hoped rules overseeing bond agreements are not changed after the fact.

"These bonds have been under-performers for years, so from a buy and hold perspective, we are not sellers here," said the investor who requested anonymity because of the ongoing talks.

"I'm unlikely to buy again if they are not transparent and change the rules governing their debt after the fact," said the second investor whose firm manages over $10 billion.

The GDB's 2011 Series B senior notes that are going unpaid were quoted around 32 cents on the dollar in early afternoon New York trade, according to Thomson Reuters data.


In a televised speech on Sunday evening, Puerto Rico Governor Alejandro Garcia Padilla imposed a moratorium on the debt payment, a "painful" decision he blamed on the absence of U.S. Congressional action to solve Puerto Rico's debt crisis.

The GDB is paying only the interest portion of its debt.

The U.S. territory faces $70 billion in debt, a staggering 45-percent poverty rate and a shrinking population as it enters the most dire stretch of its fiscal crisis. It owes another $1.9 billion on July 1 that Garcia Padilla has said it cannot pay.

Congress is debating a bill that would put the island's finances under federal oversight and allow it to restructure debt in a bankruptcy-like process, but the bill has faced criticism from conservative and liberal wings of both parties.

Pedro Pierluisi, the island's representative in Congress, spread the blame for the dire financial situation.

"Puerto Rico is in this situation for two reasons: profound inequality at the federal level and profound mismanagement at the local level," he said in a statement on Monday.

White House spokesman Josh Earnest told reporters on Monday he hoped developments would push Congress to act and give the island needed restructuring authority.

As a U.S. territory, Puerto Rico does not have access to municipal bankruptcy protection.

The Ad Hoc Group includes hedge funds Avenue Capital Management, Brigade Capital Management, Claren Road Asset Management, Fir Tree Partners, Fore Research & Management and Solus Alternative Asset Management.

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