Court-Appointed Agents Disclose Terms of Agreement in Principle to Settle the Commonwealth-COFINA Dispute

NEW YORK--()--Ms. Bettina M. Whyte, acting as the Agent appointed for COFINA, issued the following statement today related to the Joint Informative Motion of Commonwealth Agent and COFINA Agent Disclosing Agreement In Principle that was filed this evening in the United States District Court for the District of Puerto Rico:

“The COFINA Agent is pleased to have reached an agreement in principle to resolve the Commonwealth-COFINA dispute in an amicable and equitable manner with the Commonwealth Agent. Although the final agreement is subject to definitive documentation that will be developed over the next 60 days, the major terms reflected in the agreement in principle executed by the Agents are the product of extensive and thoughtful negotiations. The agreement reached reflects the assessment that these terms are in the best interests of COFINA and the Commonwealth and their respective constituencies. The agreed upon split of future sales tax revenues represents a meaningful economic recovery for both the Commonwealth and COFINA.”

The Joint Informative Motion also disclosed that the Official Committee of Retirees is supportive of the Agreement in Principle. The Official Committee of Retirees’ support for a settlement agreement is conditioned on definitive documentation, as it is for both Agents.

The Agreement in Principle can be accessed at A summary of selected terms is below:

Economic Terms

  • The Commonwealth and COFINA to share future Sales and Use Tax (“SUT”) collections, beginning on July 1, 2018. COFINA to receive the first dollars collected of the 5.5% SUT each year, until COFINA has received 53.65% of the Pledged Sales Tax Base Amount (the “PSTBA”). Thereafter, the Commonwealth would receive the remaining 46.35% of the PSTBA.
  • 100% of the SUT collections currently held in trust or deposited at BNYM through June 30, 2018 shall be retained by COFINA.
  • The property received by COFINA upon approval of the settlement agreement will be allocated to COFINA stakeholders pursuant to the COFINA Title III plan.

Restructured COFINA Securities

  • Restructured COFINA securities to be structured pursuant to the COFINA Title III plan, but terms are expected to include: (i) tax-exempt to the extent possible; (ii) non-recourse to the Commonwealth; (iii) maturity of no more than 40 years commencing on July 1, 2018; and (iv) call features to be negotiated with the Federal Oversight and Management Board (“FOMB”).
  • Consistent with the stipulation appointing the Agents, the allocation of recoveries among senior and subordinate COFINA bondholders is not part of the Agreement in Principle. The division of value allocated to COFINA among its creditors will be determined in future negotiations over the COFINA Title III Plan of adjustment to be filed by the FOMB to implement the settlement agreement.
  • Issues of treatment of monoline insurance policies (including potential commutation) shall be addressed in the COFINA Title III plan.

Protection of Settlement

  • An injunction (or federal legislative action) barring, as part of the settlement approved by the court, any future challenges to (i) all of the terms of the settlement, (ii) the 5.5% SUT, and (iii) the COFINA structure and related legislation.
  • Following the effectiveness of the settlement agreement, all claims related to the Commonwealth-COFINA Dispute will be fully resolved, and the 5.5% SUT would not be subject to repeal, restraint, priming or dilution by any other lien or loan, or any other interference.

Post-July 1, 2018 Collection of SUT

  • If the settlement does not occur for any reason, the ruling by the court on summary judgment as to the ownership of future taxes shall be determinative of the disposition of the SUT collected and deposited after July 1, 2018.

Timing and Implementation

  • The Agreement in Principle shall automatically terminate if the Agents do not execute a definitive settlement agreement within 60 days or mutually agree to extend the deadline.
  • Any settlement agreement shall only become effective once the court enters (i) an order in COFINA’s case confirming COFINA’s Title III plan that incorporates such settlement agreement and (ii) an order in the Commonwealth’s case approving the Commonwealth’s entry into such settlement agreement.


Willkie Farr & Gallagher LLP
Joseph G. Minias, 212-728-8202


Willkie Farr & Gallagher LLP
Joseph G. Minias, 212-728-8202