The initial agreement between agents representing the Puerto Rico Sales Tax Financing Corporation (Cofina, Spanish acronym) and the central government, and that would put an end to the dispute over the Sales and Use Tax (SUT), should be interpreted as a step forward in the island's debt restructuring process and, if completed, may represent a relief between $ 7 and $ 8 billion to the Puerto Rican treasury, said Daniel Salinas, one of the attorneys representing the Cofina Senior Bondholders Coalition.
In an interview with El Nuevo Día, Salinas assured that the agreement will provide "solid" recovery for local Cofina bondholders by noting that the amount negotiated would far exceed the current values of these instruments.
"initially, the agreement is an extremely positive development that should accelerate the Puerto Rican economic recovery and the global debt restructuring," said Salinas, adding that the agreement will also reduce the interest payment the government will have to make in the future.
Salinas, partner at Quinn Emmanuel Urquhart & Sullivan, said that if negotiations continue their course, Cofina bondholders could recover about 65 cents.
The lawyer stressed that there are negotiations regarding Cofina restructuring, but did not offer details.
"The final division between (bondholders) seniors and subordinated - which has no impact on the Commonwealth recovery - is still being negotiated, and will be resolved as part of Cofina´s final adjustment plan," added Salinas in describing the initial agreement as "very equitable" for the parties.
El Nuevo Día learned that Cofina's main bondholders and subordinated have been negotiating for a while, something that was partly confirmed a month ago, when several main and subordinated Cofina bondholders, together with the Puerto Rico General Obligation bondholders group (GO-Ad hoc), announced that they had reached an agreement on the same subject.
According to sources, in some preliminary scenarios, it is estimated that subordinated bondholders may receive up to 50 cents of each dollar they lent to Cofina.
Different agreements
On June 6, Cofina's agent, Bettina M. Whyte, and Luc A. Despins, partner at Paul & Hastings law firm and main legal adviser to the Unsecured Creditors’ Committee (UCC), requested Judge Laura Taylor Swain to refrain from deciding on the SUT dispute for about 60 days, a period that may serve to complete the legal proceedings of the initial agreement between the parties.
In short, instead of Swain deciding whether SUT belongs to Cofina or the General Fund, the agents, who negotiated on behalf of the Oversight Board, agreed that the SUT item committed to Cofina's debt payment will be divided between that agency and the General Fund.
Puerto Rico has a 11.5 percent SUT, and out of that amount, 5.5 percent is committed to Cofina´s obligations.
The initial agreement, if materialized, provides for 53.65 percent of the portion to Cofina to remain in that public corporation and the difference to go to the General Fund.
Although the figures are similar, the agreement between Whyte and the UCC is different from the one previously announced by GO-Ad Hoc and Cofina.
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