Tuesday, December 18, 2018

Viability of Cofina Deal Stirs Questions

By on November 30, 2018


The fiscal board’s executive director, Natalie Jaresko; Chairman José Carrión; and members Ana Matosantos and David Skeel (Jaime Rivera/CB)

Editor’s note: The following originally appeared in the Nov. 22-28, 2018, issue of Caribbean Business.

Nov. 29 was the deadline to present objections in English and Spanish to notices proposed by the government and Financial Oversight & Management Board (FOMB) to object to proofs of claims for the Puerto Rico Sales Tax Financing Corp., known as Cofina by its Spanish acronym.

On Nov. 14, the U.S. District Court entered an order that among other things approved limited omnibus objection procedures and directed the government to seek the court’s approval of the form of notice (both the English and Spanish versions) to be used in connection with filing omnibus objections to proofs of claim.

Unless a written objection to the proposed order is filed with the court no later than today, the forms of notices will be deemed approved and there will be no hearing about them. The government submitted forms for 11 objections to the proofs of claims.

For instance, one of the objections says that if the claim is not listed, it will not be affected by the omnibus objection. But if the claim is listed, “Cofina is seeking to disallow your initial claim because you filed an amended claim,” and the earlier claim is no longer needed.

Another notice of objection states that if the claim is listed it is because the indenture trustee for the series of bonds related to the claim has filed a master proof of claim on behalf of all holders of such bonds. “You do not have to file a response to the omnibus objection…to protect your rights on account of the claims asserted by the indenture trustee on behalf of you. The omnibus objection will preserve your claim, as asserted by the indenture trustee on behalf of you, for determination at a later date, and you will receive notice of further proceedings,” the proposed notice reads.

Objecting proofs of claim is a process already established in all bankruptcy procedures. When a creditor learns of a debtor’s bankruptcy case, it files proof of claim to seek payment of money owed. A claim or interest that has been filed with the court will be allowed and will serve as the basis for distribution of the creditors’ assets unless a party in interest objects.

There is no absolute deadline in the code or rules for filing an objection to a claim. If the debtor, which in this case is Cofina, files an objection to a claim, the objection becomes a contested matter. Cofina presented notices in Spanish and English to the court consisting of 11 objections. In January, the court is slated to approve Cofina’s debt adjustment plan. The court recently approved the plan’s disclosure statement, paving the way for it to be voted on.

Judge Laura Taylor Swain has said approval of the disclosure statement does not mean there is an approval of the debt adjustment plan, which is still bringing up questions about its viability.

In a letter dated Nov. 15, addressed to several members of Congress, the FOMB acknowledges the fiscal plan certified on Oct. 30 projects “significant deficits after 2033” as it pushes through Cofina’s restructuring.

The Cofina deal projects debt payments until at least 2058. The letter, sent to U.S. Sen. Elizabeth Warren and U.S. Reps. Nydia Velázquez, José Serrano and Darren Soto, was a response to a previous one sent by the lawmakers. The FOMB letter says the fiscal plan projects the expected primary surplus over the fiscal plan period and takes into consideration the Cofina deal.

“Because the fiscal plan projects significant deficits after 2033, the fiscal plan makes it clear that the Commonwealth must implement additional structural reforms,” the letter reads.

In news related to Puerto Rico’s fiscal matters, stateside media reported that Kroll Bond Rating Agency (KBRA) assigned a BBB- rating to the 6.75 percent Senior Secured Notes due in 2035 and issued in 2013 by Autopistas Metropolitanas de Puerto Rico LLC for an original principal amount of $435 million. As of September 2018, Metropistas had $416.73 million outstanding in the notes. The outlook was described as “stable.”

In addition to the notes, Metropistas has also borrowed a term loan due in December 2022, with $300.3 million outstanding. The reports did not provide reasons for the rating.

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