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Organizations exhort lawmakers to oppose Cofina restructuring bill

By on November 1, 2018

SAN JUAN – The Citizen Front for an Audit of the Debt and the organizations Vamos and Dignidad urged lawmakers Wednesday to oppose a La Fortaleza bill that would enable the debt restructuring of the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym), 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 a “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 that the principal is $17 billion; that is, we will have to pay twice what we received; twice as much as a debt that its 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 since majority of these creditors bought the bonds when their market value was 10 [cents] or 15 cents on the dollar,” Prados added.

It also makes Cofina creditors “owners” of the sales and use tax (IVU by its Spanish acronym) for more than 40 years, she further said. “The country will end up more indebted and under worse conditions than before this agreement. If the Legislature passes these bills, it will be a complication of the next fiscal crisis and will be betraying the people of Puerto Rico,” Prados warned.

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