NEW YORK/SAN JUAN (Reuters) - Puerto Rico’s sales tax-backed COFINA debt rallied on Wednesday after court filings revealed a new agreement to settle a long-running dispute with general obligation debt creditors over which group has a valid claim on the tax revenues.
The deal was reached among two court-appointed agents who have spent a year litigating over future sales tax revenues.
Late on Tuesday, the parties filed a motion in Manhattan’s U.S. District Court announcing the deal and asking for any motions for summary judgments before the court to be held “in abeyance for a period of 60 days” or until Aug. 4.
Details of the agreement were not revealed.
“I am pleased with the settlement agreement... It is an enormous significant development,” Judge Laura Taylor Swain, who is overseeing Puerto Rico’s bankruptcy, said during a hearing on Wednesday.
The bondholders, who together own about half of bankrupt Puerto Rico’s $71.5 billion in bonds, have spent years disputing ownership of future sales tax revenues. The U.S. territory declared the largest ever U.S. municipal bankruptcy in May 2017, under the jurisdiction of the special Puerto Rico financial rescue law known as PROMESA.
“There is a lot of work that remains to be done. We are not at the finish line yet,” Luc Despins, a lawyer for the unsecured creditors committee told the court, adding details would be taken back to various creditor groups.
Representatives of the financial oversight board created by PROMESA told the court they also supported the 60-day extension.
Senior COFINA debt carrying a 5.25 percent coupon maturing in 2057 rose 7 points in price to bid 75 74529JAR6=MSRB, according to Thomson Reuters data. The 6 percent subordinated COFINA bonds maturing 2042 rose 5 points in price to bid 35.50 74529JHN8=MSRB.
Puerto Rico’s constitutionally backed benchmark 8 percent GO bond maturing in 2035 rose 0.995 points in price to bid 41.875 74514LE86=MSRB.
(For graphic on Puerto Rico debt - GO and COFINA, click reut.rs/2LtDNq3)
“Because these bonds are in default, the market is assessing the settlement value based upon the agreement revealed in last night’s court filing. The effect has been favorable even for the GO bonds,” said Daniel Berger, senior market strategist Municipal Market Data, a Thomson Reuters company.
In May, the oversight board snubbed a proposed settlement by two bondholder groups that would have split the revenues roughly evenly, calling it “completely unaffordable.”
Shaun Burgess, a portfolio manager at Sarasota, Florida-based Cumberland Advisors, noted the original deal gave senior COFINA bondholders a 93 to 95 cent on the dollar recovery value versus about 42 cents for the junior COFINA debt.
“If some new deal has been reached you may be closer to that mark, which would fuel the move we have seen today. But without details it is very hard to know what the real driver is, so this move feels very speculative,” Burgess said.
Puerto Rico owes about $18 billion each in general obligation and COFINA debt. The dispute between the two sets of creditors is the central legal dispute in the island’s bankruptcy.
Reporting By Daniel Bases in New York and Luis Valentin Ortiz in San Juan; Additional reporting by Brendan Pierson in New York; Editing by David Gregorio and Diane Craft