Wednesday, June 26, 2019

Commonwealth agent: Fiscal plan impedes Cofina settlement

By on October 18, 2018

SAN JUAN – One of the individuals who will be paying close attention to the Financial Oversight and Management Board’s actions next week, when it certifies the Puerto Rico government’s fiscal plan for a third time in a year, is commonwealth agent Luc Despins.

Hired by the fiscal board to negotiate a settlement between commonwealth bondholders and those holding Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) debt, Despins is now at odds with the oversight panel. This week, he asked the court for an order seeking to enforce a stipulation to resolve the so-called 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 litigate and settle the Commonwealth-Cofina dispute on behalf of the Commonwealth.”

After months of litigation and mediation, on June 5, 2018, the 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 authorit,” 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 cashflows 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.

“To add another point of reference, the June 29 certified fiscal plan reduced the 40-year cash flow as presented in the May 30 certified fiscal plan by an amount that is several billions of dollars more than the total proceeds to be received by the Commonwealth under the Agreement in Principle,” it further says.

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.

He stressed that the fiscal board does not have the authority to seek approval of a Cofina settlement in the commonwealth’s Title III case unless it does so as part of a plan of adjustment negotiated by the agents.

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