COFINA Senior Bondholders Coalition Discloses Recovery Terms Discussed with Subordinate Bondholders

NEW YORK & SAN JUAN, Puerto Rico--()--The COFINA Senior Bondholders Coalition (the “Coalition” or “group” or “we”), which collectively represents the largest group of organized holders of bonds issued by the Puerto Rico Sales Tax Financing Corporation (“COFINA”), released the below statement today regarding its ongoing efforts to forge consensus around an intra-COFINA agreement that would implement the agreement in principle reached by the Agents for the Commonwealth and COFINA into a confirmable plan of adjustment:

“Our group, which in the aggregate holds more than $4 billion in COFINA senior and subordinate bonds, is committed to achieving a confirmable plan of adjustment consistent with the court-appointed Agents’ agreement that will restart payments for COFINA bondholders and restore Puerto Rico’s access to the capital markets in a timely manner.

Members of our group have been participating in active discussions with major holders of both senior and subordinate bonds in order to forge an acceptable intra-COFINA compromise. We seek a compromise that respects the relative priorities under the Bond Resolution while permitting COFINA subordinate bondholders to immediately resume receiving coupon payments through new bonds that have the same relative rights and priorities as the new bonds received by COFINA senior bondholders.

If achievable, this outcome will be extremely beneficial for on-island and mainland holders that relied on COFINA for safety and income. The sooner a deal can be reached among COFINA’s stakeholders to present to the Financial Oversight and Management Board, the sooner the Commonwealth can also benefit from this cost-saving debt restructuring and accelerate its economic recovery.”

Please visit here to review the June 18 “Intra-COFINA Allocation Proposal” discussed among members of the COFINA Senior Bondholders Coalition and major COFINA subordinate bondholders, for the proposed distribution of cash and new COFINA bonds that could be made under a plan of adjustment. No discussions have yet been had with the Financial Oversight and Management Board about any such plan, and no plan of adjustment can be filed by any party other than the Financial Oversight and Management Board. Following the discussion of the June 18 proposal, each side shared oral counter offers. Representatives of the Bonistas del Patio participated in the discussions but did not join in any offers.

Oral Counteroffer from Subordinate Bondholders

GoldenTree Asset Management, OppenheimerFunds, Goldman Sachs Asset Management, UBS Family of Funds, and First Puerto Rico Family of Funds counter-proposed:

  • 5.0% tax-exempt interest rate for new COFINA bonds
  • The cash held at The Bank of New York Mellon would be paid out as post-petition tax-exempt interest (approximately two-thirds to subordinate bondholders, and one-third to senior bondholders)
  • Senior and subordinate bondholders would receive the same new bonds in different ratios
    • Pro forma future cash flows would be split 55% for senior bondholders and 45% to subordinate bondholders
  • The new bonds would not be callable
  • Bondholders would bear their own restructuring costs
  • Senior bondholders would receive new bonds equal to 90% of the pre-petition claim, subordinate bondholders would receive new bonds equal to 62% of the pre-petition claim
  • COFINA bondholders would receive a deficiency note from the Commonwealth of Puerto Rico to recoup losses sustained by COFINA bondholders contingent on the future financial performance of the Commonwealth, on terms to be negotiated with the Financial Management and Oversight Board

Oral Counteroffer by Senior Bondholders

The COFINA Senior Bondholders Coalition (excluding GoldenTree Asset Management, which participated as a subordinate bondholder), with the support of National Public Finance Corp., and Ambac Assurance Corp. counter-proposed:

  • 5.375% tax-exempt interest rate for new COFINA bonds
  • The cash at The Bank of New York Mellon would be distributed ratably among senior and subordinate bondholders
  • Senior bondholders would receive new bonds equal to 100% of the prepetition claim, which would equate to 92.8% on the post-petition claim as of September 30, 2018
    • New COFINA bonds would be subjected to a market test based on the yield to maturity being between 5.0% and 5.5%
    • Senior bondholders will work in good faith to structure a fair market test so as to ensure the actual recovery does not exceed 100% of the prepetition claim
  • Subordinate bondholders would receive the identical bonds as seniors in an amount equal to 45.7% of the prepetition claim
  • All bondholders would use their best efforts to achieve full call protection
  • COFINA bonds would remain non-recourse to the Commonwealth and there would be no deficiency note to cover COFINA bondholder losses

No agreement was reached among all of the foregoing parties, and no further counteroffers were made between the senior and subordinate groups. The COFINA Senior Bondholders Coalition remains in confidential discussions pursuant to the mediation procedures entered in COFINA’s Title III case with Ambac Assurance Corp., National Public Finance Corp., GoldenTree Asset Management, and representatives of the Bonistas del Patio to try and achieve an intra-COFINA agreement that could be presented to the Financial Oversight and Management Board consistent with the timetable envisioned by the Agents’ settlement in principle.

About the Coalition

The COFINA Senior Bondholders Coalition is a group of creditors based throughout the United States. COFINA was the original "rescue bond" established in 2007 following the 2006 passage of bi-partisan legislation by the Puerto Rico Legislative Assembly. At last count made available by the Government of Puerto Rico, COFINA bonds were the most widely held bond amongst on-island individuals and retirees.

Cautionary Statement

This communication and accompanying material is not intended to represent a recommendation or investment advice of any kind. Such content is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational purposes only and, as such, should not be construed as legal or investment advice and/or a legal opinion.

Contacts

Profile Advisors
Greg Marose / Charlotte Kiaie, 347-343-2999
gmarose@profileadvisors.com / ckiaie@profileadvisors.com

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