Holdouts Agree To Puerto Rico’s Cofina Debt Deal

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<h3>James A. Klotz</h3>

James A. Klotz

A significant group of bondholders opposed to a restructuring agreement for Puerto Rico’s Cofina debt have now signed onto the deal.

The Financial Oversight and Management Board for Puerto Rico said Aurelius Capital Master, Ltd. and Six PRC Investments LLC, an affiliate of Monarch Alternative Capital, will also drop their claims filed in federal court challenging the constitutionality of Cofina, the commonwealth’s sales-tax authority.

The agreement represents the restructuring of nearly 24% of Puerto Rico’s debt, reduces Cofina’s debt by 32% and will result in more than $17 billion in debt service savings, according to the oversight board.

Holdouts Agree to Puerto Rico's Cofina Debt Deal

Cofina debt agreement to be filed next month

The agreement, which covers sales-tax backed bonds, would be the first debt adjustment plan to seek court approval. It is expected to be filed in court next month.

The holdouts had contended the oversight board is illegal, and General Obligation bondholders should have first claim on tax revenues, before holders of about $18 billion of bonds issued by Cofina.

There has been simmering debate over who owns Puerto Rico’s future sales tax revenue.

As we noted recently (“Progress on Puerto Rico’s Bond Debt”), agreements have been moving forward in recent months on Cofina debt as well as Puerto Rico’s power utility and the Government Development Bank debt.

Last month a new group was formed to address the commonwealth’s GO bonds.

All told, the deals would restructure about 40% of Puerto Rico’s bond debt.

If the Cofina debt agreement proceeds as planned, a “consensual restructuring” of its debt could occur by the end of the year, according to the oversight board.

James A. Klotz

President

James A. Klotz is the President of FMSbonds, Inc.
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Sep 24, 2018

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