COFINA deal approval advances PROMESA goals

Legislative approval for a restructuring of the Puerto Rico Sales Tax Financing Corp. (COFINA) moves the island a step closer toward economic recovery, according to the Commonwealth’s oversight board.

The Puerto Rico Oversight Board said Friday that it welcomes approval by Senate and the House of Representatives for the Plan of Adjustment filed in the Title III Court on Oct. 19 covering all of the $17.6 billion in COFINA debt. The deal represents 24% of Puerto Rico’s total bonded debt and provides for more than a 32% reduction in COFINA debt, according to the oversight board. The agreement also provides Puerto Rico roughly $17.5 billion in debt service savings and enables “significant recovery” for the island’s local retail bondholders.

“We appreciate the commitment of the Legislature to continue supporting the orderly process of restructuring Puerto Rico’s unsustainable debt,” Natalie Jaresko, executive director of the Oversight Board, said in a statement. “The approval of this legislation advances the objectives outlined in PROMESA to regain access to capital markets and direct the Island towards an economic recovery."

The COFINA was deal approved as a restructuring for the former Government Development Bank also moved forward. U.S. District Court Judge Laura Taylor Swain gave her approval Tuesday for a plan to write down around $4 billion of GDB debt after bondholders authorized the deal in September.

“There is a lot of work ahead to achieve the dynamic and prosperous economy that Puerto Ricans deserve, but the dialogue with leaders of the Legislative Assembly is encouraging and we look forward to the continuation of our collaborative efforts,” said Jaresko.

As bondholders moved closer to deals for COFINA and GDB debt, an ad hoc group holding billions of Puerto Rico-guaranteed bonds has formed with the goal of negotiating a comprehensive restructuring of the Commonwealth’s debts. The new Commonwealth Bondholder Group said Thursday that it has teamed up with Bonistas del Patio Inc., a nonprofit organization that advocates for the interests of on-island bondholders who hold in excess of $1 billion of debt issued or guaranteed by the Commonwealth.

The press offices for both groups did not respond for comment on the decision and timing behind their actions. The Commonwealth Bondholder Group holds an aggregate of $3.3 billion of bonds that were issued or guaranteed by Puerto Rico's government.

The Commonwealth Bondholder group and Bonistas both retained Davis Polk & Wardwell LLP as legal counsel and Ducera Partners as financial advisor. The groups also said the plan to work cooperatively with several dozen Puerto Rico cooperatives and other stakeholders to achieve a consensual resolution to the Commonwealth’s Title III case.

The newly formed ad hoc is composed of funds managed or advised by Aurelius Capital Management LP, Autonomy Capital (Jersey) LP, Brigade Capital Management LP, Canyon Capital Advisors LLC, Davidson Kempner Capital Management LP, Monarch Alternative Capital LP, and OZ Management LP. The group also retained Paul, Weiss, Rifkind, Wharton & Garrison LLP, Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP and Goldin Associates LLC for other legal matters.