Friday, April 20, 2018

Cofina creditors appeal stay ruling

By on March 13, 2017

SAN JUAN – Holders of some $2 billion in Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) senior bonds appealed on Monday to the U.S. First Circuit Court of Appeals in Boston a federal court ruling that denied their motion to stay a lawsuit that challenges the legality of Cofina.

José F. Rodríguez and other institutional holders of approximately $2 billion in senior secured Cofina bonds appealed an opinion and order issued on Feb. 17 that not only denied their motion to stay the action, but also denied their motion to intervene for the sole purpose of seeking enforcement of the Promesa stay, which runs until May.

The move is the latest in the so-called Lex Claims lawsuit in which general obligation (GO) bondholders want the court to declare the illegality of the Cofina structure and to have the entity’s funds diverted to pay GO bondholders.

Created in 2006, Cofina’s roughly $17 billion debt is backed by a share of the island’s sales and use tax (IVU by its Spanish acronym) that goes directly to cover debt service twice a year, with the remainder of the revenue going to commonwealth coffers after bondholders are paid. The pledged portion of the IVU is Cofina property and that revenue doesn’t constitute “available resources” of commonwealth itself. For that reason, the government continues to pay Cofina bondholders, but defaulted last year in payments to GO holders even though it recently began to pay interest on the bonds.

The Financial Oversight and Management Board is also appealing to the Boston court the Feb. 17 ruling in which Federal Judge Francisco Besosa rejected a stay in the lawsuit


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