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Majority of Cofina Bondholders Agree to Debt Deal

By on January 14, 2019

The Charging Bull statue in Lower Broadway in New York (CB photo)

Editor’s note: The following originally appeared in the Jan. 10-16, 2019, issue of Caribbean Business.

The Financial Oversight & Management Board (FOMB) for Puerto Rico announced this week that the voting process for the Title III Plan of Adjustment of the $17 billion debt of the Puerto Rico Sales Tax Financing Corp., known as Cofina by its Spanish acronym, has been accepted by a majority of the bondholders.

That does not mean the deal will automatically go through because U.S. Judge Laura Taylor Swain on Jan. 16 must evaluate whether it complies with the federal law Promesa. She is also slated to hear objections that may result in changes to the plan. Nonetheless, the board and sources close to the deal assured Swain will give the green light to the plan.

In a statement, the Oversight Board said that based on unaudited voting results, all classes of senior and junior Cofina bondholders had “accepted the Plan of Adjustment by overwhelming numbers.”

The Oversight Board further indicated that more than 8,000 bondholders returned ballots, thereby establishing the success of the solicitation process and the widespread support for the restructuring.

“The Cofina Plan of Adjustment, and the compromises of the many issues involved, is another step in helping set Puerto Rico on the road to recovery. We are confident the transaction will be approved at the confirmation hearing and that this important restructuring can be consummated shortly thereafter,” said Oversight Board Executive Director Natalie Jaresko.

The Cofina debt-adjustment plan agreed to last year is twofold. First, it would settle the dispute between commonwealth and Cofina bondholders over ownership of the revenue from the sales & use tax (known as IVU by its Spanish acronym). Under the settlement, about 53.5 percent of the pledged sales & use tax will go to Cofina and about 46 percent to the commonwealth. The deal, secondly, will restructure the debt with Cofina bondholders, who will exchange their current bonds for new bonds whose value will be cut by 32 percent. Senior bonds were cut by 7 percent, that is they will recover 93 percent of the nominal value of the bonds, while junior bonds were cut by 46 percent, enabling a recovery of 53.9 percent of the bonds’ value.

There have been objections raised to the plan, including that debt-service payments are slated to increase, and it could lead to another default.

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