U.S. District Judge Laura Taylor Swain has approved a plan to restructure nearly $18 billion of Puerto Rico’s Sales Tax Financing Corp. (COFINA) debt. Judge Swain, who is based in New York but oversees Puerto Rico’s bankruptcy-like proceedings, said the Court believes that the COFINA plan is essential to the island’s financial recovery efforts.
The approval from Judge Swain required a two-step process. First, she had to determine whether the settlement agreement between COFINA bondholders and the Commonwealth was fair and reasonable. The agreement effectively provides a 53.65%/46.35% allocation of Puerto Rico’s Sales and Use Tax (“SUT”) revenue between COFINA and the Commonwealth, respectively. Judge Swain determined that the settlement “was a fair and reasonable settlement and compromise of the Commonwealth-COFINA Dispute given the substantial risks of litigation ….”
In total, Puerto Rico owes over $70 billion to bondholders and other creditors, as well as another $50 billion in unfunded pension obligations. The territory has been attempting to restructure this $120 billion of liabilities since it filed for bankruptcy-like protection in May of 2017.