Bond counsel expects exclusion of taxable interest on new GO bonds

By The Star Staff

The central government’s bond counsel, Nixon Peabody, says it expects that interest on new general obligation (GO) bonds to be issued as part of the debt restructuring will be excluded from gross income for federal income tax purposes.

The information is contained in a March 1 Electronic Municipal Market Access (EMMA) filing.

On the effective date of the issuance of the commonwealth’s Series 2022A bonds — the new GO bonds — Nixon Peabody will deliver an opinion that under existing law and other covenants the interest on the new bonds will be exempt from gross income under section 103 of the tax code, according to the filing.

“Bond counsel also expects to deliver an opinion on the effective date that interest on the Series 2022A bonds is not treated as a preference item in calculating the alternative minimum tax imposed under the code,” the document states.

Nixon Peabody did not say why he expected the interest on the bonds to be exempted from taxes. However, generally bonds issued by Puerto Rico are.

The news is good for bondholders that will exchange bonds as part of the debt restructuring and makes the bonds more attractive.

Title III Bankruptcy Judge Laura Taylor Swain confirmed the central government’s debt adjustment plan earlier this year. The plan would reduce about $33 billion, down to roughly $7 billion — significantly reducing annual repayments to bondholders who own Puerto Rico’s debt. Debt service payments are slated to be $1.5 billion annually.