Puerto Rico GO, Cofina bondholders reach agreement in principle
Editor’s note: This June 6 article has been updated to reflect a Thursday-evening filing with details on the proposed agreement.
SAN JUAN – Agents representing holders of Puerto Rican general obligation bonds and Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) bondholders asked U.S. District Judge Laura Taylor Swain to refrain from making a decision related to their dispute for 60 days because they may have reached an initial agreement.
In the GO-Cofina dispute, commonwealth bondholders argue that the Cofina structure is illegal and that sales tax revenue should go to the island’s general fund as government revenue.
“The Commonwealth Agent and Cofina Agent have reached an agreement in principle to settle the Commonwealth-COFINA Dispute and those related issues that may be mediated pursuant to the order expanding the scope of the Agents’ mediation authority,” a document submitted to the court on Tuesday read.
A Thursday evening filing revealed that Cofina bondholders would receive $1.2 billion being held in the Bank of New York Mellon, which serves as trustee until the dispute is resolved, as well as 53.65% of the pledged yearly sales- and use-tax (IVU by its Spanish acronym), with the commonwealth receiving the rest.
The new, seemingly better, development comes about after several bondholders published details on a proposed settlement to the Cofina-GO dispute on May 14, which the island’s Financial Oversight and Management Board rejected. If the new deal is approved, the board would decide if the rest of the IVU revenue will be used for essential government services.
“Although the Agents have reached an agreement in principle, holders of claims that would be affected by a settlement should be aware that there are various conditions precedent and subsequent that may prevent the settlement from ever becoming effective,” Tuesday’s document states.
The agents are asking the court to give the parties until Aug. 4 to ensure the conditions that precede the agreement are met.
The resolution of the dispute is needed in the bankruptcy process to determine how to distribute the assets. The news comes a day after the government informed the court, as previously reported by Caribbean Business, that they would be filing a Title VI petition for the Government Development Bank in July.
“It is an extremely positive development for Puerto Rico and its citizenry that the court-appointed agents have reached a negotiated settlement ahead of a litigated outcome. Settling the COFINA dispute positions the island to accelerate its economic recovery and path back to the capital markets while also offering bondholders, including local and retail holders, a tangible path to benefiting from resumed coupon payments. We encourage all parties to continue to respect the Commonwealth-COFINA dispute resolution protocol as the process continues,” Matt Rodrigue of Miller Buckfire & Co., financial adviser to Cofina Senior Bondholders said in a statement.