Wednesday, May 22, 2019

Cofina bondholder groups stress benefits of restructuring deal

By on November 5, 2018

SAN JUAN – Puerto Rico local bondholder group Bonistas del Patio and the Cofina Senior Bondholder Coalition insisted Monday on the merits of the restructuring deal for the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) stating that it will be good for Puerto Rico as it will restructure a huge portion of the island’s $70 billion debt.

“The COFINA restructuring plan, which is supported by a large cross-section of local bondholders and elected leaders, will help end what has been years of financial uncertainty and hardship in Puerto Rico. Moreover, the terms ensure that on-island holders receive meaningful recoveries and the resumption of interest payments on their savings, which represents essential income for many retirees and average individuals,” the groups said in a statement.

“It is an important fact that 33% of the public debt came to be held by Puerto Rican residents in 2012, COFINA being the largest holding among local bondholders. The Plan offers the government billions in debt relief, as it reduces the total debt service payable, by over $20 Billion or 40%. In addition, it increases the government’s annual share of the sales tax revenues, making more available for payment of public services. This consensual agreement will also allow the government to avoid millions of dollars in legal expenses and open the door to issuing low-cost securitization bonds in the future, something Puerto Rico needs in order to foster and sustain economic development and financial stability,” they added.

The bondholder groups issued their statement after the Citizen Front for an Audit of the Debt and the organizations Vamos and Dignidad urged lawmakers last week to oppose a bill sent to the Legislature by the governor’s office, La Fortaleza, that would enable Cofina’s debt restructuring, claiming it would lead to a potential default, more taxes, and cuts in services and pensions.

Under the agreement, the holders of Cofina senior and junior bonds will exchange their current notes for new senior lien bonds backed by 54% of a 5.5% sales tax law. Senior bondholders will get 93 cents on the dollar with an additional 2 cents for being in the negotiation groups. Junior bondholders will get 56.4 cents on the dollar. After 2044, the bonds will change to capital appreciation bonds that grow on value.

The organizations asked the legislature to demand “fair renegotiation” of the agreement with bondholders that is “less burdensome for the island” and that complies with debt limits imposed by the island’s Constitution.

House Bill 1837 and Senate Bill 1114 would amend Cofina’s charter law to enable the agreement between the fiscal oversight board and the creditors, but the groups said the restructuring will tie islanders to debt payments long-term.

“This agreement is the door to more irresponsible indebtedness and will lead the government to fall back into default. There is talk of $17.5 billion savings, but the reality is the people will have to pay in the long term $33 billion in debt [whose] principal is $17 billion; that is, we will have to pay twice what we received; twice as much as a debt [whose] constitutionality was compromised in the federal court and with a country recovering from an unprecedented natural disaster,” said Eva Prados, a lawyer and spokesperson for the Citizen Front for Debt Audit.

“In addition, this agreement privileges the most powerful creditors, mostly vulture funds, over the bondholders of the island, committing the people to pay them up to 93 cents on the dollar of the original value of the senior category bonds a since majority of these creditors bought the bonds when their market value was 10 [cents] or 15 cents on the dollar,” Prados added.

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