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OBoard, P.R. gov’t reach deal with COFINA creditors; to save $17B+ in debt service

The Financial Oversight and Management Board for Puerto Rico and the government of Puerto Rico announced they have reached a deal with Senior and Junior bondholders of Sales Tax Financing Corp. credit, as well as monoline insurers.

The terms of the consensual agreement call for granting holders of COFINA (as the entity is known in Spanish) debt Senior Lien Bonds, through which they will have a senior pledge of the 5.50 percent sales and use tax collected, up to the 53.65 percent of Pledged Sales Tax Base Amount cash flow through and including the year 2058.

Meanwhile, during the 40-year term, the government of Puerto Rico will save more than $17 billion in debt service payments, at a rate of $425 million annually.

The Board expects this deal to lead to a consensual plan of adjustment for COFINA and “represents a significant milestone in resolving Puerto Rico’s debt crisis.”

“Our objective has been to achieve a debt restructuring agreement with all COFINA parties consistent with the agreement in principle reached by the agents for the COFINA and Commonwealth, the terms of which were announced on June 7, 2018, and we believe this agreement has honored that goal,” said Natalie Jaresko, executive director of the Oversight Board.

“Moreover, this consensual deal with all COFINA bondholders proves both the Board’s and government’s commitment to reaching consensual agreements to Puerto Rico’s debt wherever possible,” she said.

“We do want to thank the appointed federal judge mediators whose tireless efforts were essential to the constructive negotiation process we had with the COFINA bondholders, as well as the Ad Hoc Group of Senior bondholders, monolines insurers and other bondholders, who played an important role to create an acceptable consensual plan,” she said.

The agreement in principle is product of the mediation process ordered by Judge Laura Taylor Swain in the Title III cases for Puerto Rico and is led by Judge Barbara Houser and her team of mediating judges.

The deal provides for more than a 32 percent reduction in COFINA debt, avoids additional costly and time consuming litigation, enables local retail bondholders in Puerto Rico to receive a significant recovery, and provides flexibility to the Commonwealth in managing future debt refinancing, while avoiding the liquidity based borrowings that contributed to the current crisis, the Oversight Board noted.

“We welcome this agreement which represents a big step forward to achieving PROMESA’s mandates and continuing to restructure responsibly Puerto Rico’s debt in a sustainable way. We look forward to furthering these efforts with all creditors,” Jaresko added.

Upon announcing the deal, Gov. Ricardo Rosselló said, “this agreement represents a significant step in restructuring Puerto Rico’s debt and reaffirms once again the credibility of our efforts. It joins the agreements that we have already reached with the bondholders of the Government Development Bank and those of the Puerto Rico Electric Power Authority. Moreover, these agreements are an important step to recover access to capital markets.”

He said the deal is “aligned with aligned with Puerto Rico’s fiscal reality.”

The COFINA Senior Bondholders Coalition issued a statement regarding the terms of the deal, saying it “marks a major milestone for Puerto Rico on its road to recovery.”

“The terms lay the groundwork for future capital markets access, equitable recoveries and the resumption of restructured cash interest for all bondholders, including a large cross-section of local retirees and individuals. Importantly, the deal also reduces Puerto Rico’s debt by approximately $7 billion, preserves access to low-cost securitizations and increases the Commonwealth’s FY2019 sales tax revenue by more than $360 million,” the statement by the group of creditors formed in 2015.

“Reaching an agreement that is supported by the Oversight Board, the Government of Puerto Rico and other major stakeholders also validates what has been a multi-year commitment of considerable resources and time by all parties,” the group stated.

“In addition to consistently advocating for consensual restructuring agreements, our group actively supported the passage of the Puerto Rico Oversight, Management, and Economic Stability Act and helped develop the dispute resolution protocol for COFINA’s Title III case. We now look forward to working with all parties to finalize a Plan of Adjustment that can be confirmed by year’s end,” it added.

COFINA bonds are the most widely held bond amongst on-island individuals and retirees, the group noted.

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