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Assured Guaranty joins agreement between senior, subordinate Cofina bondholders

By on August 9, 2018

SAN JUAN – Assured Guaranty Municipal Corp. (AGM), a bond insurance subsidiary of Bermuda-based holding company Assured Guaranty Ltd, has agreed to terms of the agreement in principle resolving how Puerto Rico sales-and-use-tax (IVU by its Spanish acronym) revenues will be divided between holders of senior and subordinate bonds issued by the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) and secured by IVU revenues.

The most recent agreement is supported by senior and subordinate Cofina creditors, including AGM–representing about $10 billion of the public corporation’s debt–as well as the island’s Financial Oversight and Management Board and government.

Cofina creditors will exchange their positions for new senior closed lien Cofina bonds.

“Implied recoveries, including fees for parties to the RSA [restructuring support agreement], will be in the mid-90% range for the senior bonds and approach 60% for the subordinate bonds. AGM expects to wrap its share of the new senior lien exchange bonds, which will be offered and sold in the public capital markets. As the insurer of $273 million of outstanding subordinate Cofina bonds, AGM believes the additive value created by attaching its insurance policy to its allocated exchange bonds will materially improve its overall recovery well above 60% and create new insurance premium for the Company,” the firm said.

Assured Guaranty, however, said it is reserving all of its rights as a Puerto Rico general obligation (GO) bondholder with respect to both the IVU revenues allocated to the commonwealth and other available resources of the commonwealth. Under the Puerto Rico Constitution, such revenues and resources must be used to pay GO debt before any other claim, debt or expense.

“This agreement among COFINA bondholders is an important step towards achieving a consensual plan of adjustment for a significant portion of Puerto Rico’s debt. For Assured Guaranty and other junior bondholders, the agreed terms represent a significantly better recovery when compared with recent market prices. Additionally, subordinated COFINA exposures will be converted to senior obligations that have investment grade characteristics and will be protected from dilutive issuance of additional senior bonds,” Assured Guaranty President and CEO Dominic Frederico said.

“Importantly, senior COFINA holders should see nearly full recoveries. It follows that high levels of recovery are achievable for senior bonds of other Puerto Rico credits, which constitute the bulk of our insured Puerto Rico exposure. This is especially true and appropriate for general obligation bonds, Puerto Rico’s highest seniority debt, which are protected by the Commonwealth’s Constitution and PROMESA,” he added.

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