August 30, 2018 / 5:09 PM / 3 months ago

Puerto Rico sales tax bond deal heads to court by October 15

(Reuters) - A final agreement to restructure Puerto Rico’s sales tax-backed bonds will be filed by Oct. 15 in federal court, where a judge overseeing the U.S. commonwealth’s bankruptcy case will decide its fate, parties to the deal said on Thursday.

A plan support agreement between Puerto Rico, its Sales Tax Financing Corporation (COFINA), the island’s federally created oversight board, bondholders and bond insurance companies that was announced on Thursday would be the first debt adjustment plan to seek court approval.

Puerto Rico has been in bankruptcy court since May 2017 trying to restructure about $120 billion of debt and pension obligations. A deal with COFINA creditors surfaced earlier this summer.

“The deal provides for more than a 32 percent reduction in COFINA debt, gives Puerto Rico approximately $17.5 billion in debt service savings and enables local retail bondholders in Puerto Rico to receive a significant recovery,” said Natalie Jaresko, the oversight board’s executive director, in a statement.

She added that it paves the way for “achieving a consensual restructuring of COFINA debt by the end of 2018.”

A coalition of senior COFINA bondholders hailed the deal, which includes investors in senior and junior bonds as well as island residents who bought the debt, as “a significant milestone for Puerto Rico on its road to economic revitalization.”

The agreement could still face a headwind. In June, a key group of Puerto Rico bondholders who own general obligation debt opposed the proposed COFINA deal. GO and COFINA bondholders have long debated the ownership of Puerto Rico’s future sales tax revenue.

Puerto Rico’s unsecured creditor committee (UCC), moreover, warned in a court filing that the terms of the COFINA deal would result in a $28 billion deficit under the commonwealth’s most recent fiscal plan.

In a court motion filed on Aug. 13, the UCC, which represented the commonwealth in negotiating the COFINA settlement framework, states that these issues must be solved before the committee supports any plan of adjustment for COFINA.

Puerto Rico’s fiscal board, meanwhile, expects to again revise the commonwealth’s fiscal plan, which was last certified on June 29. It is unknown whether this revision will address the issues raised by the UCC.

Reporting by Karen Pierog in Chicago and Luis Valentin Ortiz in San Juan; editing by G Crosse

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