Puerto Rico Agency Plans Talks With Hedge-Fund Creditors

Puerto Rico’s Government Development Bank is planning to begin confidential debt-restructuring talks with hedge funds that own its bonds as early as next week, said a person familiar with the matter.

The parties are set to discuss a plan under which the investors would lend additional money to the bank and exchange the bonds they currently own for new securities.

Hedge funds that own the GDB bonds, including Avenue Capital Group, Brigade Capital Management and others, organized this summer and hired law firm Davis Polk & Wardwell LLP and advisory firm Ducera Partners LLC to represent their interests, according to people familiar with the matter. The bank announced in early July that it could attempt to exchange its old bonds for new bonds or cash at prices that are “materially less than par.”

The proposed talks are just one part of Puerto Rico’s efforts to restructure a $72 billion debt load that Gov. Alejandro García Padilla has called unpayable. The island has been struggling for years with a lagging economy and high unemployment, a situation that has prompted many island residents to move to the U.S. mainland.

Bonds from the GDB have weakened in price over the last few weeks. A 2018 bond traded Tuesday at 32.625 cents on the dollar, compared with 34 cents in mid-August, according to the Electronic Municipal Market Access website.

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Nearly $900 million of bonds were scheduled to come due this fiscal year, according to Standard & Poor’s, adding urgency to the island’s effort to deal with the GDB’s bonds. The ratings firm said in July that it believed the GDB “will have difficulty meeting its debt service requirements.”

The preparations for this round of restructuring talks were reported earlier by Bloomberg.

Talks with another group of investors are already under way. Investors who own bonds from the Puerto Rico Electric Power Authority are negotiating with officials over a debt-restructuring plan for that agency. Under previous agreements, the parties in those talks have until the end of Tuesday to agree on a plan.

The Puerto Rico Aqueduct and Sewer Authority delayed a bond sale last month after not enough investors expressed interest in the deal. The delay should give investors time to review a broader restructuring plan under development for the entire island. A draft of that plan was due to be delivered on Aug. 30, but the governor granted an extension until Sept. 8, citing inclement weather from a tropical storm.

In early August, Puerto Rico defaulted on bonds from another public agency, the Public Finance Corp., when it missed a debt payment.

Write to Mike Cherney at mike.cherney@wsj.com and Matt Jarzemsky at matthew.jarzemsky@wsj.com

By Mike Cherney And Matt Jarzemsky

Puerto Rico Agency Plans Talks With Hedge-Fund Creditors