Only days after the Oversight Board (OB) approved a fiscal plan that intends to cut a third of the debt service for the next 10 years, the Fiscal Agency and Financial Advisory Authority (FAFAA) announced yesterday that the Government will step aside in the dispute between the General Obligation (GO) bondholders and the bondholders of the Sales Tax Financing Corporation (COFINA, by its Spanish acronym).
Although FAFAA stated that it would not pick a side in the controversy, Ricardo Rosselló’s administration will not appeal the decision made by federal Judge Francisco A. Besosa in the First Circuit Court of Appeals. However, Rosselló’s administration will ask the Judge to settle the controversy between both bondholder groups by April 30.
The Government’s move runs counter to the motion filed by the OB before Besosa this week, where they request the application of PROMESA’s automatic stay on litigations to the lawsuit initiated by the GO bondholders. The Board has even appeared before the intermediate federal court, asking for a reversal of Besosa’s ruling.
Yesterday, FAFAA and the legal representative of the Ad Hoc Group of GO Bondholders, Andrew Rosenberg, issued a joint statement indicating that both parties have initiated talks “for reaching a broad resolution of the issues raised by the GO Bondholders in connection with their asserted constitutional and contractual rights and remedies.”
“The parties are hopeful that these talks will lead to a resolution concerning the potential treatment of Constitutional Debt, and ultimately, comprehensive talks involving other creditors and stakeholders, with the objective of achieving a conclusive and binding agreement on all participating parties,” added the statement, in which the desire to reach a mutual agreement through Title VI of PROMESA is reiterated.
González Applauds Change in Public Policy
"I would like to congratulate the Governor because this announcement to negotiate in good faith and under Title VI makes a real difference in this administration's public policy," said, for her part, Resident Commissioner Jenniffer González.
"That same stance of negotiating in good faith must be taken with COFINA's bondholders," added the Resident Commissioner, referencing the second most important credit among the Government's debt issuers, and whose future would now depend on Besosa's ruling or the decision that arises from the Boston appeals process.
González reminded that in the case of the COFINA bonds, a large chunk of that debt was acquired by local bondholders. This means that any decision made concerning this credit will affect thousands of individuals on the Island.
"Unlike GO bondholders—who are not in Puerto Rico for the most part—, a large portion of COFINA's debt is in the hands of local investors, Puerto Rican people," she indicated. "I imagine that the good faith stance will also be come up with COFINA bondholders, especially local ones."
When asked by El Nuevo Día regarding the controversy on COFINA's validity, González indicated that when the organization was created in 2006 she was involved with that legislation, providing Puerto Rico a stronger mechanism than other credits.
"I believe in COFINA's legality and each government has to protect its laws. I believe that COFINA has been good for Puerto Rico and it has been a credit model that has been used in other places," said González.
She recalled that last year, alongside the former Chairman of the Committee on Hacienda (Treasury), Rafael "Tatito" Hernández, they considered raising COFINA's rank as the Island's debt issuer. This, because Puerto Rico should consider a similar structure in the future, be it as a result of the debt renegotiation or in case new instruments are created.
"COFINA's structure should be emulated because it provides both parties with conviction," highlighted the Resident Commissioner.
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