Many of the largest cooperativas in Puerto Rico have agreed to a limited exchange of about $33 million in Government Development Bank bonds in a deal that was announced just days before the island's government defaulted on $422 million in other bonds.
The deal did not mention any federal support for the state cooperativas and the $33 million is a just drop in the bucket as the cooperativas hold hundreds of millions of dollars in GDB bonds. The GDB said negotiations are continuing with other entities that hold its bonds, including hedge funds. Meanwhile, the island's government defaulted on $422 million in bonds Tuesday.
Cooperativas are financial institutions insured by a territory government agency, the Corporation for the Supervision and Insurance of Cooperatives. There are more than 100 cooperativas in Puerto Rico in addition to 11 credit unions that are insured by the NCUA.
The cooperativas currently have more than 966,000 members and total assets of $8.47 billion.
Attorney Jose Sosa-Llorens, who represents several of the major cooperativas, has said Congress should consider granting the NCUA the authority to guarantee the cooperativas' deposit insurance. However, legislation to assist Puerto Rico with its debt crisis remains stalled on Capitol Hill.
Under the deal with the GDB, the cooperativas will exchange about $33 million in bonds that had been scheduled to mature on May 1, 2016 for newly issued bonds that will mature on May 1, 2017.
“This private exchange was designed to address the unique financial considerations of the cooperativa institutions,” the GDB said in a statement. “As GDB and the Commonwealth of Puerto Rico have repeatedly stated the government recognizes the key role the cooperativas play in promoting social and economic development on the island and is committed to working with the cooperativas.”
Recently, an association representing cooperativas purchased a full-page ad in one of the island's major newspapers expressing solidarity with the government and its desire to cooperate in developing a solution to the crisis, and to remind people of the difference between the cooperativas and hedge funds, according to Luis Gallardo, an attorney and a city council member in Aguas Buenas, Puerto Rico, who has written extensively on the Puerto Rican debacle.
“I think this was necessary in order to remind that not all bond holders are alike,” he said.
Gallardo added legislation is pending in the island's legislature to exempt cooperativas from the recently enacted debt moratorium.
“We have to see how it comes out of the local legislature and see whether the governor signs it into law,” he said. “This would be the ideal situation for the cooperativas and would save them from monthly uncertainties.”
However, a second attorney was more skeptical of the deal between the GDB and the cooperativas. Only 25 of the cooperativas were part of the deal, said John Mudd, an attorney in Puerto Rico who represents one cooperativa and has written extensively about the Puerto Rico debt crisis, said.
“Where are the others?” he asked. “We don't know.”
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