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Cofina bondholders object to commonwealth agent’s motion

By on October 19, 2018

SAN JUAN – Senior bondholders of the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) objected Friday to remarks by commonwealth agent Luc Despins against a deal that seeks to end the dispute between bondholders of Cofina and Commonwealth debt creditors over ownership of sales and use tax revenue.

“COFINA’s consensual restructuring plan – which is supported by the Commonwealth, [Fiscal] Oversight Board, and major COFINA and GO [general obligation] bondholders and insurers – is a significant step forward on Puerto Rico’s road to recovery. The compromise offers billions in debt relief, while increasing the government’s annual share of sales tax revenues and returning fair recoveries for local individuals holding the island’s first rescue bonds,” the Coalition of Cofina Senior Bondholders said.

Hired by the island’s fiscal oversight board to negotiate a settlement between commonwealth bondholders and those holding Cofina debt, Despins is now at odds with the federally established panel. This week, he asked the court for an order seeking to enforce a stipulation to resolve the Commonwealth-Cofina dispute, arguing that the board wants to approve its own settlement of the dispute.

Despins, who also represents the Official Committee of Unsecured Creditors–in all Title III cases, other than Cofina, under the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa)–was appointed commonwealth agent in July 2017 to settle the dispute on behalf of the commonwealth.

After months of litigation and mediation, on June 5, 2018, Despins and Cofina’s agent, Bettina Whyte, executed an agreement in principle to resolve their respective party’s dispute, in which each side agreed to share sales and use tax revenues.

“Now, in violation of the Stipulation, the Oversight Board has announced that it will file a motion, seeking approval of its settlement of the Commonwealth-COFINA Dispute…,” Despins said in a motion filed late Wednesday. “The Oversight Board has no authority,” he added.

Despins said he approved the agreement in principle, relying upon the May 30, 2018, certified fiscal plan. The board, however, revised the May 30 fiscal plan’s long-term projections “materially downward” in connection with another certification of the fiscal plan on June 29, 2018, thus “rendering a settlement along the lines of the Agreement in Principle neither feasible nor desirable.”

After taking into account Cofina’s debt service under the settlement, the projected cash flows under the June 29 fiscal plan would reflect an about $28 billion deficit for the commonwealth and that deficit “assumes that no Commonwealth creditor would receive a plan distribution,” the motion reads.

Despins said that as long as the current fiscal plan is in effect, or “one that suffers from the same deficiencies,” the settlement cannot be executed.

“While it’s disappointing the Commonwealth Agent is looking to delay the very deal it negotiated and filed with the Court, we hope for the sake of the island the path to plan confirmation will be speedy and efficient. The Agent cannot dictate to the congressionally-established Oversight Board and the democratically-elected government how and when to settle its debts and free up its sales taxes from ongoing litigation,” the Cofina bondholders said.

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