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First Puerto Rico debt restructuring deal approved for COFINA

A restructuring agreement for bondholders of debt issued by Puerto Rico's Sales Tax Financing Corp., known as COFINA, was approved Monday by the federal judge overseeing Puerto Rico's bankruptcy.

U.S. District Judge Laura Taylor Swain approved the plan, which must be implemented by March 1, or June 1 if the Financial Oversight and Management Board for Puerto Rico extends it.

The first debt-adjustment plan to advance in Puerto Rico's bankruptcy process, the COFINA agreement proposed in October restructures all $17.6 billion of COFINA debt and represents 24% of Puerto Rico's total bonded debt.

It was supported by bondholders, bond insurance companies and the oversight board. The deal reduces COFINA debt overall by 32% and gives senior bondholders 93% of the value of the original bonds and junior bondholders 55%. It also saves Puerto Rico about $17.5 billion in debt service, according to oversight board officials, who estimate that it reduces the annual maximum cash flow to COFINA to $992 million from a previous limit of $1.85 billion.

In a joint statement, the heads of COFINA and the Puerto Rico Fiscal Agency and Financial Advisory Authority said the agreement "represents a significant achievement in advancing Puerto Rico's public policy objective to attain fiscal responsibility and access to the capital markets."

The oversight board also noted that the agreement enables local retail bondholders in Puerto Rico to receive a significant recovery. Civil rights, faith-based, labor and advocacy organizations are pressing for more debt-reduction agreements. "The math isn't adding up. If plans to restructure the remaining debt fail to cut the majority of the island's debt load, Puerto Rico can't see sustained economic recovery and growth," said Eric LeCompte, executive director of Jubilee USA, a network of community organizations and faith communities.