Although she acknowledged that the plan “commits substantial portions of Puerto Rico’s scarce revenues to bond payments over a period of decades,” U.S. federal judge Laura Taylor Swain approved yesterday the adjustment plan for the Sales Tax Financing Corporation (COFINA)
Swain´s ruling marks the first concrete step in debt restructuring in federal court since the U.S. Congress granted Puerto Rico a remedy similar to municipal bankruptcy by passing PROMESA and creating the Oversight Board.
Both the government and the Board welcomed Swain´s ruling on about $17 billion in bonds issued under Anibal Acevedo Vilá and Luis G. Fortuño administration, payable through the Sales and Use Tax (SUT).
For governor Ricardo Rosselló Nevares, Puerto Rico has taken a major step “toward its total financial recovery” and added that the court´s decision proves the credibility gained by his administration.
He also stated that the approval in federal court of the first adjustment plan, as provided in PROMESA Title III, allows Puerto Rico to restructure 25 percent of its total public debt issue by previous administrations.
Rosselló Nevares stressed that the deal represents more than $400 million annually that will be available for services in areas such as health care, education and public safety as well as pension payments for about 16,000 public retirees.
José B. Carrión, chairman of the Board, also welcomed the decision by stating that this “agreement reduces COFINA debt by 32%, saving the people of Puerto Rico $17.5 billion in debt servicing and providing bondholders, including numerous on-island bondholders with meaningful recovery.
While Natalie Jaresko said that the “COFINA deal demonstrates the Board’s commitment to seeking consensual agreements with creditors where possible, and our determination to resolve Puerto Rico’s debt crisis and establish sustainable foundations for Island’s economic road to recovery.”
Swain´s approval lays the grounds for the Board and the Rosselló Nevares administration to join a fiscal plan revision process that should be completed by April, according to the schedules released by the Board last week
Among other things, COFINA plan will bring additional revenues that will be available for the General Fund, once the bond transaction is completed.
According to the Board, the deal provides “average anual savings on COFINA debt service through 2057 of $456 million.”
A plan that puts an end to litigation
However, as reported by El Nuevo Día, the plan is the result of a negotiation and mediation process between creditors, the Board and the government, along with the interest of the parties in avoiding a multi-million dollar lawsuit.
According to Swain, if the negotiation and mediation process –monitored by a Court-appointed team- wouldn´t have resulted in a Stipulation reached by COFINA representative Bettina M. Whyte and the Unsecured Creditors Committee (UCC) to divide SUT revenues, and if COFINA creditors and the government wouldn´t have desisted from other litigations, the plan might have been delayed.
The plan approved resolves six adversary proceedings in Court, two appeals before the Boston First Circuit Court and an additional lawsuit in Puerto Rico District Court that is not associated to Title III.
Although the plan would also bury the dispute over the SUT, Swain clearly stated that her approval does “not foreclose further investigation, whether through regulatory, law enforcement, or civil litigation channels, into the origins of Puerto Rico’s debt crisis and the application of the proceeds of the pre-PROMESA borrowings.”
Swain stressed that in “formulating a separate plan for the Commonwealth, the Oversight Board and the elected Government will have to address the logical and well-founded concerns of citizens and creditors of the Commonwealth in responsible, meaningful ways.”
“The Court is deeply mindful that the COFINA Plan, which is based on compromisos of strongly contested positions, commits substantial portions of Puerto Rico’s scarce revenues to bond payments over a period of decades while at the same time affording bondholders less value, on different terms, than they had expected when they invested in COFINA,” stated Swain, who also concluded that the Board “has met its burden with respect to each element of PROMESA section 314 and, to the extent applicable to consideration of the confirmation of the Plan,” as provided in Bankruptcy Rule 9019.