Davis Polk is advising an ad hoc group of bondholders, whose members hold approximately $1 billion of bonds issued by the Government Development Bank for Puerto Rico (“GDB”) in the restructuring of approximately $7.6 billion of GDB bonds, deposits and other liabilities pursuant to the restructuring support agreement, dated as of May 15, 2017 (as amended, the “RSA”). The restructuring, which involves claims held by governmental and non-governmental creditors and is being effectuated pursuant to a combination of Puerto Rico law and federal law, is supported by the Financial Oversight and Management Board, the Government of Puerto Rico, more than 40 local credit cooperativas and more than 300 on-island bondholders, in addition to the ad hoc group.

On August 9, 2018, GDB announced the launch of the solicitation of votes to approve the restructuring and on August 10, 2018 GDB filed an application with the U.S. District Court for the District of Puerto Rico to approve the restructuring of approximately $4.2 billion in claims under Title VI of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), passed by Congress in 2016 in response to the Puerto Rico debt crisis. Title VI contemplates a consensual modification of indebtedness that is negotiated and voted on by sufficient creditors and then approved by a federal court. The GDB restructuring transaction represents the first ever Title VI proceeding to be filed. Once the requisite votes to approve the restructuring are received and the transaction is approved by the court, all claims subject to the Title VI restructuring will be automatically exchanged for new bonds issued by the GDB Debt Recovery Authority, a newly-formed Puerto Rico government entity. The new bonds will be backed by certain assets of GDB transferred to the GDB Debt Recovery Authority, including GDB’s performing loan portfolio, real estate portfolio and unencumbered cash, which will be managed by a third-party private servicer, who will be retained by the issuer but monitored by a third-party collateral monitor engaged on behalf of the bondholders.

GDB is a public corporation and government instrumentality of the Commonwealth of Puerto Rico, which acted as fiscal agent, paying agent and financial adviser to the Commonwealth of Puerto Rico and its instrumentalities, public corporations and municipalities. GDB also provided interim and long-term financing to, and acted as depositary or trustee of funds for, the Commonwealth and its instrumentalities, public corporations, and municipalities in addition to private parties for economic development.

The Davis Polk restructuring team includes partners Donald S. Bernstein and Brian M. Resnick, associates Angela M. Libby and Stephanie Massman. The capital markets team includes partner Nicholas A. Kronfeld. The litigation team includes partner Benjamin S. Kaminetzky and associate Marc J. Tobak. The tax team includes partners Lucy W. Farr and Mario J. Verdolini and counsel Leslie J. Altus. All members of the Davis Polk team are based in the New York office.

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