In a step toward a restructuring of the debt of Puerto Rico Sales Tax Financing Corp. bonds, the Puerto Rico Oversight Board is seeking a fiscal plan for COFINA.
The board sent a letter to Gov. Ricardo Rosselló on Wednesday requesting a COFINA fiscal plan for fiscal years 2019 to 2023.
On Aug. 8 the Rosselló government, the board, and some holders of COFINA bonds announced an agreement in principal for a COFINA restructuring.
The COFINA Seniors Group said, “We have always believed COFINA should have its own fiscal plan and welcome the step towards a COFINA plan of adjustment based on the agents’ agreement in principal as further developed by the Oversight Board, [Puerto Rico Fiscal Agency and Financial Advisory Authority], and COFINA plan support parties. Establishing a plan with accurate data and reliable projections will be beneficial for all stakeholders.”
Section 314(b)(7) of the Puerto Rico Oversight, Management, and Economic Stability Act says that a debtor’s plan of adjustment must be consistent with an applicable certified fiscal plan. A spokesman from the COFINA Seniors Group said that because of this, creating a fiscal plan was a step toward approving a COFINA plan of adjustment.
In the board’s letter, board Executive Director Natalie Jaresko told the governor that the COFINA fiscal plan should at a minimum have: revenue projections for the fiscal plan period; expense projections for the fiscal plan period; distributions of the sales and use tax by recipient and/or class for the fiscal plan period; debt service as reflected in the COFINA deal for the fiscal plan period; and debt sustainability analysis, which incorporates the COFINA deal, for 40 years.
Jaresko said the board expects to certify a COFINA fiscal plan by Sept. 21.
On Thursday, Moody’s Investors Service revised the outlook on COFINA senior and COFINA subordinate bonds upward. The bonds continue to be rated deeply in junk-bond territory at Ca but the senior bonds’ outlook has gone to positive from negative and the subordinate bonds’ outlook has gone to stable from negative.
“If implemented, the settlement could lead to higher recoveries for senior-lien COFINA creditors than the 35% to 65% range reflected in the current Ca rating, and recoveries for subordinate lien creditors in line with the Ca recovery range,” wrote Genevieve Nolan, a Moody’s senior analyst.
Nolan said there was still “substantial uncertainty” around the future of the COFINA deal. Whether the deal is affordable and whether holders of the general obligation bonds will challenge it remains to be seen, she said.
COFINA is the class of Puerto Rico municipal debt with the largest balance outstanding. As of February 2017, the balance was $17.6 billion.
