June 12, 2018 / 10:32 PM / a year ago

Puerto Rico GO bondholders will not support COFINA settlement

June 12 (Reuters) - A group of holders of Puerto Rican general obligation bonds said it is not ready to support a proposed deal to settle a key dispute in the U.S. territory’s $120 billion bankruptcy.

In a Monday filing in Puerto Rico’s bankruptcy court, the so-called ad hoc group of GO bondholders, whose debt is constitutionally guaranteed, said parts of the proposed settlement “are simply unlawful.”

Puerto Rico owes $120 billion in total debt, including about $71.5 billion in bond debt.

Its two biggest debt classes - a combined $36 billion or so - are constitutionally-backed GO debt and debt issued by its sales taxing authority, COFINA.

GO and COFINA holders have long debated whether the island’s sales tax revenue is property of the island’s commonwealth government - and therefore can be used to pay GO debt - or property of COFINA, which could only be used to repay COFINA bonds.

As litigation wore on, the judge overseeing Puerto Rico’s bankruptcy appointed separate agents for COFINA and the commonwealth government, and ordered them to try to settle their differences.

The agents last week announced the framework of a settlement under which sales tax receipts would be split, with COFINA holders getting more than half. The agents asked the judge to delay ruling on litigation between the sides for 60 days, to give them time to finalize the deal.

But the GO group said it was not consulted by the commonwealth agent, and called the deal a “value grab” under which COFINA’s senior bondholders could receive 125 percent of the face amount of their bonds.

It said it supports the 60-day delay sought by the agents, but only if the period is used to negotiate new terms.

“The massive diversion of value will make any consensual restructuring of the commonwealth’s obligations nearly impossible,” the group said. (Reporting by Nick Brown; Editing by Lisa Shumaker)

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