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Green Light for Cossec Deal on Hold

By on September 22, 2016

SAN JUAN – Within the context of the fiscal plan and potential solutions to all Puerto Rico creditors, the Alejandro García Padilla administration evaluates whether to back an exchange transaction between local credit unions and the Credit Union Supervision & Insurance Corp. (Cossec by its Spanish acronym).

So stated the Financial Advisory & Fiscal Agency Authority (AAFAF by its Spanish acronym) in a written statement to Caribbean Business in reaction to the deal that was recently approved by the entity’s board.

“Without prior warning to the government, a concrete proposal from the [creditor group comprising credit unions] G-25 was submitted to Cossec’s board of directors,” the issued statement reads. It adds that the three public sector members on the board “could not endorse the transaction, because the proposal lacked analysis of its impact on Cossec and the entire credit union system.”

Earlier this week, Cossec President Sergio Ortiz called for consensus, to ignore speculation and trust “the solvency, liquidity and solidity of one of the country’s safest economic sectors.” He warned that the law empowers the regulator to perform such transactions to ensure the stability of cooperatives. He also admitted that the situation with Puerto Rico bonds “touches” the system.

The transaction would allow credit unions to exchange to Cossec, at par value, an amount of the Puerto Rico bonds in their portfolios, for preferred shares at an interest rate of 4%. Up to $400 million would be available for the exchange that would see Cossec’s books receiving bonds currently in default.

Sources have raised flags on the potential deal over the need to inject money to Cossec before making such a transaction, as well as the short- and long-term effects it could have on the entity and the island’s credit union sector.

Meanwhile, José Sosa, a lawyer who advises G25, recently told Caribbean Business that while the fiscal oversight board readies itself to begin work, cooperatives must be stabilized and strengthened, thus the importance of this transaction. He argues that Cossec “is in a better position to manage” the systemic risk associated with a potential debt restructuring of Puerto Rico’s debt.

For his part, Ortiz says the measure won’t affect, but increase, the net capital of Cossec, and that the idea is one of dozens the entity evaluates. According to its Sept. 19 statement, the governing body is evaluating “various asset management measures that limit risks,” taking into consideration Cossec’s management, advisers and board of directors, as well as representatives of credit unions.

The public corporation announced Sept. 13 the “approval by extraordinary majority” of various measures, including the proposed exchange.

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