Bondholders Sue Puerto Rico As Debt Talks Falter

A group of hedge funds in New York that invested in Puerto Rico general obligation bonds are suing the island’s government. The bond lawsuit came just days before the island is expected to default on a $2 billion debt payment due, including over $700 million in general obligation bonds on July 1, and on the same day that the island announced it was ending talks with bondholders about debt payments.

The negotiations has resulted in a number of failed proposals and counterproposals, but no resolutions. The U.S. Commonwealth continues to owe $70 billion in public debt, including $12.5 billion in general obligation debt.

The hedge funds’ complaint seeks to invalidate a law allowing Puerto Rico Governor Alejandro Garcia Padilla to put into effect a temporary debt moratorium. The bondholders contend that when they purchased the general obligation bonds, they had counted on the protection that was supposed to guarantee the bonds under the territory’s constitution.The hedge funds are arguing that they are entitled to be paid first—and in full—and on time. They claim that the the moratorium cannot be applied to the bonds that they hold. Also, the hedge funds are accusing the Puerto Rico government of improperly diverting tax revenue to the Puerto Rico Sales Tax Financing Corp. (COFINA) so more debt could be issued while bondholders were not paid.

Governor Padilla said the emergency debt moratorium would cover certain notes that Puerto Rico has issued. Padilla noted that this was essential for protecting his government’s ability to provide the island’s essential services and to ensure the well-being of residents. The executive order applies to certain PRIFA notes. PRIFA is the Puerto Rico Financing Authority.

With the executive order, all obligations to move funds or revenues related to PRIFA bond anticipation notes have been suspended. The notes are now covered obligations under the Puerto Rico Emergency Moratorium and Rehabilitation Act. Recently, Fitch Ratings downgraded Puerto Rico’s issuer default rating and related debt ratings from CC to C.

Since 2013, our Puerto Rico securities fraud lawyers at Shepherd Smith Edwards and Kantas, LLP have been working with investors on the island and the mainland to recoup investment losses they sustained in Puerto Rico bond funds and Puerto Rico closed-end bond funds. Many of these investors were inappropriately persuaded by brokerage firms, such as Banco Popular,瑞银Puerto Rico (UBS-PR），和Banco Santander（SAN）将他们的资金投资于这些风险投资。

甚至鼓励一些投资者借钱，以便他们可以投资更多地投资于债券或债券资金。当债券在2013年急剧下降时，这些投资者遭受了巨大的损失。一些投资者失去了一切。

波多黎各州长暂停了基础设施债务的付款, Reuters, June 25, 2016

对冲基金Sue Puerto Rico in N.Y.关于财政危机法, Bloomberg, June 21, 2016