COFINA Holders Lawyer Talks about the Bonds' Present and Future

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Despite Puerto Rico's financial crisis it continues to pay the bonds of the Puerto Rico Sales Tax Finance Corp. (COFINA). However, since the start of June Puerto Rico representatives have said that in the current fiscal year this may not continue. And the recently passed PROMESA law could potentially make the COFINA bonds eligible for a haircut.

In the aftermath of the recent dramatic developments, the lead attorney representing the interests of holders of COFINA senior bonds answered some questions about his group's goals and what is going on with the bonds.

Susheel Kirpalani is chairman of the bankruptcy and restructuring practice at Quinn Emanuel Urquhart & Sullivan, LLP. Kirpalani represented bond insurer Syncora Guarantee in the Jefferson County, Alabama and Detroit municipal bankruptcies.

 

Q: Aside from repayment of course, what are the holders of COFINA senior bonds seeking in any restructuring?

 

A: The holders of the COFINA senior bonds are interested in getting a good rating for any possible future restructured bonds. COFINA has always been the highest rated bond and we are looking to see Puerto Rico return to the capital markets and re-establish an investment grade rating following any restructuring. This is because highly rated bonds will improve liquidity and increase value for small and large holders alike.

 

Q: What would be some of the benefits to the commonwealth of your group's most recent proposal?

 

A: We made our last proposal on June 14, 2016. We sought to preserve the COFINA structure and existing liens on all COFINA revenues and assets, but we offered to provide fiscal relief consistent with what the Commonwealth has said it needs. One outcome of our proposal would be the reduction of the amount of costly short term financing and roll risk — such as TRANS debt — that the commonwealth currently has to undertake every year. It is important to note that in order to do this, the commonwealth needs to work with COFINA bondholders consensually in a restructuring.

 

Q: Why do you think COFINA's structure is important to protect?

 

A: It is important to note that COFINA was the commonwealth's first and largest securitization, and ensuring that our property rights and priorities are respected is essential to ensure that future securitizations — like PREPA and PRASA takeout financings — are not endangered, especially since securitizations tend to be the cheapest cost of financing.

 

Q: What do the COFINA senior bondholders want for Puerto Rico's coming years?

 

A: The COFINA bondholders want the Puerto Rico local economy to thrive. A thriving economy supports the payment of the bonds because they are backed by the sales tax.

 

Q: Could you talk a little about what Puerto Rico's government position been in bond negotiations?

 

A: Puerto Rico's government has promoted growth bonds as being part of any restructuring package, and we think this should be attractive to junior creditors who otherwise may be asked to accept less than full value based on current conditions which could improve over the years.

 

Q: What is happening with payment of the COFINA bonds right now?

 

A: Currently, Banco Popular is collecting Puerto Rico's sales taxes and sending them over to the Bank of New York Mellon, which is the COFINA bond trustee. This is what the law requires because COFINA's share of the sales taxes is not available to the commonwealth government. Bank of New York Mellon has enough money collected for the bonds to pay the COFINA bonds for several months.

 

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