August 8, 2018 / 10:12 PM / in 8 months

UPDATE 1-Deal reached over Puerto Rico sales tax bonds

(Adds statements from oversight board, governor and coalition of senior bondholders)

By Karen Pierog

Aug 8 (Reuters) - Puerto Rico has reached a deal with bondholders and insurers of debt issued by its bankrupt sales tax financing corporation, COFINA, the U.S. territory’s governor and federal oversight board said on Wednesday.

The agreement would reduce COFINA’s sales-tax-backed debt by more than 32 percent and result in about $17.5 billion in debt service savings, officials said in statements.

The board, which was created under a federal act known as PROMESA, said it expects the deal with senior and junior bondholders and monoline insurance companies that guarantee bond payments to lead to a consensual plan of adjustment for COFINA.

Puerto Rico has been in bankruptcy court since May 2017 trying to restructure about $120 billion of debt and pension obligations.

“This agreement represents a significant step in restructuring Puerto Rico’s debt and reaffirms once again the credibility of our efforts,” Governor Ricardo Rossello said in a statement.

He noted agreements have also been reached with bondholders of Puerto Rico’s Government Development Bank and more recently with some investors in Puerto Rico Electric Power Authority debt.

“These agreements are an important step to recover access to capital markets,” the governor said.

The COFINA Senior Bondholders Coalition said in a statement that the deal lays the groundwork for future capital access, as well as “equitable recoveries and the resumption of restructured cash interest for all bondholders, including a large cross-section of local retirees and individuals.”

“Importantly, the deal also reduces Puerto Rico’s debt by approximately $7 billion, preserves access to low-cost securitizations and increases the commonwealth’s FY2019 sales tax revenue by more than $360 million,” the statement said. (Reporting by Karen Pierog in Chicago; Editing by Daniel Bases, Tom Brown and James Dalgleish)

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