Commonwealth-COFINA bondholders disclose agreement to end dispute
Sales Tax Financing Corp. bondholders submitted an Agreement in Principle in the U.S. District Court in Puerto Rico, potentially ending its dispute with the island’s government.
Bettina M. Whyte, acting as the agent appointed for COFINA, as the Sales Tax Financing Corp. is known for its initials in Spanish, said to be “pleased to have reached an agreement in principle to resolve the Commonwealth-COFINA dispute in an amicable and equitable manner with the Commonwealth Agent.”
Among the agreement’s economic aspects, the Commonwealth and COFINA agreed to share future Sales and Use Tax (“SUT”) collections, beginning July 1, 2018. COFINA will receive the first dollars collected of the 5.5 percent SUT each year, until COFINA has received 53.65 percent of the Pledged Sales Tax Base Amount (the “PSTBA.”) Thereafter, the Commonwealth would receive the remaining 46.35 percent of the PSTBA.
“The agreed upon split of future sales tax revenues represents a meaningful economic recovery for both the Commonwealth and COFINA,” Whyte said.
COFINA will retain 100 percent of the SUT collections currently held in trust or deposited at Bank of New York Mellon through June 30, 2018. Furthermore, the property COFINA received upon approval of the settlement agreement will be allocated to COFINA stakeholders pursuant to the COFINA Title III plan.
Restructured COFINA securities
As part of the agreement, restructured COFINA securities to be structured pursuant to the COFINA Title III plan, but terms are expected to include: tax-exempt to the extent possible; non-recourse to the Commonwealth; maturity of no more than 40 years commencing on July 1, 2018; and call features to be negotiated with the Financial Oversight and Management Board for Puerto Rico.
- Consistent with the stipulation appointing the Agents, the allocation of recoveries among senior and subordinate COFINA bondholders is not part of the Agreement in Principle. The division of value allocated to COFINA among its creditors will be determined in future negotiations over the COFINA Title III Plan of adjustment to be filed by the FOMB to implement the settlement agreement.
- Issues of treatment of monoline insurance policies (including potential commutation) shall be addressed in the COFINA Title III plan.
Protection of settlement
The parties also agreed on:
- An injunction (or federal legislative action) barring, as part of the settlement approved by the court, any future challenges to all of the terms of the settlement, the 5.5 percent SUT, and the COFINA structure and related legislation.
- Following the effectiveness of the settlement agreement, all claims related to the Commonwealth-COFINA Dispute will be fully resolved, and the 5.5 percent SUT would not be subject to repeal, restraint, priming or dilution by any other lien or loan, or any other interference.
If the settlement were to fall through for any reason, the ruling by the court on summary judgment as to the ownership of future taxes will be decisive of the disposition of the SUT collected and deposited after July 1, 2018, the parties said.
“The agreement reached reflects the assessment that these terms are in the best interests of COFINA and the Commonwealth and their respective constituencies,” she said.
The agreement will end automatically if the parties are unable to execute a definitive deal within 60 days or mutually agree to extend the deadline.
“Although the final agreement is subject to definitive documentation that will be developed over the next 60 days, the major terms reflected in the agreement in principle executed by the agents are the product of extensive and thoughtful negotiations,” Whyte said.
Any settlement agreement will only take effect once the court enters an order in COFINA’s case confirming its Title III plan that incorporates such settlement agreement and an order in the Commonwealth’s case approving its entry into the deal.