COFINA deal approaches legislative, court hurdles

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The Puerto Rico Sales Tax Financing Corp. (COFINA) bond restructuring deal faces hurdles in the local legislature and the Title III bankruptcy court in the coming weeks.

As part of the deal the legislature needs to pass a bill with several measures. Neither the Puerto Rico Senate nor the House of Representatives have voted on the bill. In both bodies committees are still considering the bill.

About $17.5 billion of COFINA bonds are in Title III bankruptcy.

The Senate and House of Representatives are in session until Nov. 13 and then are scheduled to be out of session for the remainder of the year.

Puerto Rico Gov. Ricardo Rosselló introduced the bill to the island’s House and Senate on Oct. 11.

The COFINA Seniors Coalition said Tuesday: “We’re confident that the local legislature will take the necessary steps to support the ultimate consummation of the COFINA plan of adjustment. There is widespread support among on-island lawmakers as well as the governor for the plan, which offers billions in debt relief while increasing the government’s annual share of sales tax revenues and returning fair recoveries to secured creditors holding the island’s first rescue bond.”

On Wednesday, Fiscal Agency and Financial Advisory Authority Executive Director Christian Sobrino said that the legislature has been busy with other important bills, preventing it from addressing the COFINA bill. Sobrino said he didn’t expect any problems with passing the bill.

Spokespeople for the leaders of the Puerto Rico House and Senate didn’t respond Wednesday to Bond Buyer inquiries about the status of the bill.

The deal would give Puerto Rico a 32% reduction in COFINA debt and more than $17 billion in debt service savings, part of an effort to strengthen the island’s economy and restructure more than $51 billion of debt. The Plan Support Agreement and Summary of Terms and Conditions can be found on the Puerto Rico Oversight Board’s website.

The Puerto Rico Oversight Board said that with the proposed deal, if bond trustee money would be distributed, as the plan specifies, there would be recoveries of 93% for COFINA senior bondholders and 56.4% for COFINA subordinate holders.

Along with the support of the governor, the deal is supported by COFINA, the COFINA Seniors Coalition, the Oversight Board, and the Ad Hoc Group of General Obligation Bondholders.

Among the provisions of the Puerto Rico bill are authorizing the Title III bankruptcy restructuring, authorizing new COFINA bonds as part of the restructuring, and creating a statutory lien for the benefit of COFINA bondholders.

In other news about the COFINA restructuring, on Tuesday the Unsecured Creditors Committee filed a statement with the Title III court saying it had not yet decided whether it will file an objection to the Oversight Board’s motion to approve a Commonwealth-COFINA dispute settlement. Effectively, the committee indicated that it hadn’t yet decided whether it supports the COFINA restructuring deal.

In an Aug. 10, 2017, stipulation and order Title III Puerto Rico bankruptcy Judge Laura Taylor Swain said that the Unsecured Creditors Committee would have to support the COFINA deal for it to go forward.

On Oct. 19 the Oversight Board filed a plan of adjustment for COFINA with the Title III court. This includes plans for most COFINA holders to vote on the plan. For a class to be said to have approved the COFINA deal, at least two-thirds of the dollar amount outstanding and more than one-half of the number of allowed claims must vote in favor of it.

If not all classes vote in favor, the board could request Swain to declare the plan approved. Those holding Section 510(B) subordinated claims against COFINA are to get nothing in the deal and are deemed to have voted to reject it.

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PROMESA Puerto Rico Sales Tax Financing Corp (COFINA) Commonwealth of Puerto Rico Puerto Rico Infrastructure Financial Authority Puerto Rico