Government Development Bank for Puerto Rico Senior Notes, 2011 Series C
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TO THE RECIPIENTS OF THE OFFICIAL STATEMENT, DATED SEPTEMBER 12, 2011 RELATING TO $450,000,000 Government Development Bank for Puerto Rico Senior Notes, 2011 Series C SUPPLEMENT DATED SEPTEMBER 28, 2011 The Official Statement, dated September 12, 2011, is hereby supplemented by adding the following under “Loans to the Commonwealth, its Public Corporations and Municipalities – Highways and Transportation Authority” under the caption Government Development Bank: As part of the Government’s public-private partnership initiative, the Public-Private Partnerships Authority and the Highways and Transportation Authority (collectively, the “Sponsors”) recently completed the procurement for a concession of toll roads PR-22 and PR-5 (the “Toll Roads”). On June 10, 2011, the Sponsors selected Autopistas Metropolitanas de Puerto Rico, LLC (“Metropistas”), a consortium comprised of Goldman Sachs Infrastructure Partners and Abertis Infraestructuras, as the winning proponent based on a bid of $1.080 billion. On June 27, 2011, Metropistas and the Highways and Transportation Authority executed the concession agreement for the Toll Roads (the “Concession Agreement”) and, on September 22, 2011, the parties successfully completed the financial closing. As a result of this transaction, the Highways and Transportation Authority received a lump-sum payment of $1.136 billion and a commitment to invest $600 million in the maintenance and rehabilitation of the Toll Roads over the 40-year term of the concession. In connection with the closing of the concession of the Toll Roads, on September 22, 2011, Government Development Bank executed a payment guarantee in favor of Metropistas (the “Guaranty”) pursuant to which it acts as guarantor of any Termination Damages due and payable in cash by the Highways and Transportation Authority under the Concession Agreement. For purposes of the Concession Agreement, “Termination Damages” refers to a payment that would arise if Metropistas elects to terminate the Concession Agreement as a result of: (i) an action that appropriates or sequesters all or a material part of the Toll Roads, the revenues derived therefrom and Metropistas’s interest therein (or any of them) or materially impedes, substantially frustrates or renders impossible Metropistas’s ability to perform its obligations for 90 consecutive days; and (ii) a material default by the Highways and Transportation Authority that is not remedied within the allowed grace periods. In both cases, the amount of Termination Damages would consist of: (a) the fair market value of Metropistas’s interest in the Toll Roads, plus (b) any compensation payable under the terms of the Concession Agreement for the period between the date of the occurrence of the event that gives rise to the Termination Damages and the termination date, such as loss of revenues and other documented losses; plus (c) out-of-pocket costs and expenses incurred by Metropistas as a result of the termination; less (d) insurance proceeds paid or payable to Metropistas (or which would have been payable to Metropistas but for a breach by Metropistas of the insurance policy or a requirement under the Concession Agreement to maintain insurance or the insolvency of the insurer). Termination Damages covered under the Guaranty also include the Highways and Transportation Authority’s obligation to pay Metropistas the lesser of the fair market value of the concession or the unamortized concession fee if (i) the Concession Agreement is rescinded or terminated as a result of a conviction or guilty plea by Metropistas, its subsidiaries or its executives of a crime referred to in Act No. 458 of December 29, 2000, as amended (“Act No. 458”), to the extent such crime was not committed in connection with the procurement of the Concession Agreement, or (ii) Metropistas is convicted with respect to a crime under Act No. 237 of August 31, 2004, as amended, or Act No. 84 of June 18, 2002, as amended. In connection with the execution of the Guaranty, on September 22, 2011, Government Development Bank and the Highways and Transportation Authority entered into a Reimbursement Agreement (the “Reimbursement Agreement”) whereby the Highways and Transportation Authority agreed to reimburse Government Development Bank any amounts paid under the Guaranty. Under the Reimbursement Agreement, in order to reimburse Government Development Bank fully for any payments made under the Guaranty, the Highways and Transportation Authority is required to issue bonds secured by the revenues generated by the Toll Roads (which will be returned to the Highways and Transportation Authority in the event the Concession Agreement is terminated) within one year from the effective date of a termination of the Concession Agreement requiring the payment of Termination Damages. On September 22, 2011, the Highways and Transportation Authority approved the bond resolution under which such bond issue would be authorized. Pending such bond issue, the reimbursement obligation will be secured by the revenues of the Toll Roads. 2 NEW ISSUE – BOOK-ENTRY ONLY RATINGS: MOODY’S: Baa1 See “Book-Entry Only System” under The 2011 Series C Notes See Ratings S&P BBB In the opinion of Squire, Sanders & Dempsey (US) LLP, Bond Counsel, under existing law (i) assuming continuing compliance with certain covenants and the accuracy of certain representations, interest on the 2011 Series C Notes is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (ii) the 2011 Series C Notes and interest thereon are exempt from state, Commonwealth of Puerto Rico and local income taxation. Interest on the 2011 Series C Notes may be subject to certain federal taxes imposed only on certain corporations, including the corporate alternative minimum tax on a portion of that interest. For a more complete discussion of the tax aspects, see Tax Matters herein. $450,000,000 GOvernment DEvelopment Bank for Puerto RIcO Senior Notes, 2011 Series c Government Development Bank for Puerto Rico (“Government Development Bank”) is a public corporation and governmental instrumentality of the Commonwealth of Puerto Rico (the “Commonwealth”) created by law in 1948. Government Development Bank acts as financial advisor to and fiscal agent for the Commonwealth and its instrumentalities, public corporations and municipalities, and provides interim and long-term financing to the Commonwealth and its instrumentalities, public corporations and municipalities, and to private parties for economic development. Government Development Bank’s existence is perpetual, and pursuant to its enabling law, no amendment to such law or to any other law of the Commonwealth may impair any of its outstanding obligations or commitments. The Senior Notes, 2011 Series C (the “2011 Series C Notes”) are being issued by Government Development Bank pursuant to the provisions of the trust indenture, dated February 17, 2006, as amended or supplemented (the “Indenture”), between Government Development Bank and Banco Popular de Puerto Rico, as trustee (the “Trustee”). Government Development Bank will use the proceeds from the sale of the 2011 Series C Notes, together with other available moneys, to provide a loan to the Secretary of Treasury of Puerto Rico for the purpose of managing intra-year cash flow needs of the Commonwealth during fiscal year 2012 and to pay the costs of issuance associated with the 2011 Series C Notes. Subsequent to the issuance of the 2011 Series C Notes, Government Development Bank expects to issue its Senior Notes, 2011 Series D and its Senior Notes, 2011 Series E (collectively, the “2011 Series D and E Notes”). The 2011 Series D and E Notes are expected to be offered for sale pursuant to separate Official Statements. The issuance of the 2011 Series C Notes is not contingent upon the issuance of the 2011 Series D and E Notes. The 2011 Series C Notes have the following characteristics: • The 2011 Series C Notes will bear interest from their date of issuance at fixed rates as set forth on the inside cover page of this Official Statement. • Interest on the 2011 Series C Notes will be payable at their maturity, or earlier redemption or purchase thereof. • The 2011 Series C Notes are subject to optional redemption prior to maturity as described herein. See “Optional Redemption” under The 2011 Series C Notes. • The registered owners of the 2011 Series C Notes will have the right to tender their 2011 Series C Notes for purchase to the Trustee, as initial tender agent for Government Development Bank, on any business day in which banks are open for business in Puerto Rico on or after July 30, 2012, upon ten day’s prior written notice. See “Optional Tender” under The 2011 Series C Notes herein. • The 2011 Series C Notes will be issued as fully registered notes without coupons in denominations of $5,000 principal amount and integral multiples of $5,000 in excess thereof and will initially be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York, which will act as securities depository for the 2011 Series C Notes. Purchasers of the 2011 Series C Notes will not receive physical delivery of the 2011 Series C Notes. The inside cover page contains information on the maturity, interest rate, and price of the 2011 Series C Notes. The 2011 Series C Notes, the outstanding notes previously issued under the Indenture, and any additional notes that Government Development Bank may from time to time issue under the Indenture (collectively, the “Notes”) are general, unsecured, senior obligations of Government Development Bank, ranking on parity with all other general, unsecured and unsubordinated obligations of Government Development Bank. The 2011 Series c Notes do not constitute an obligation of the commonwealth or any of its political subdivisions or public instrumentalities, other than Government Development Bank, and neither the commonwealth nor any of its political subdivisions or public instrumentalities is liable thereon.