Bondholders and Hedge Funds Sue Puerto Rico After Litigation Stay Expires

Hours after a May 1 deadline passed, unfreezing any creditor litigation against Puerto Rico, a number of creditors sued the U.S. territory over its outstanding bonds. Plaintiffs of these Puerto Rico bond lawsuits include general obligation bondholders, COFINA bondholders, and bond insurer Ambac.

The May 1 deadline was supposed to have given the island and its federal financial oversight board time to come up with a debt-reduction agreement with creditors as Puerto Rico owes more than $70 Billion of debt. No deals were made by the deadline.

Following the failure of the island to reach any debt reduction deals, Fitch Ratings downgraded $3.5 Billion of PRASA-issued debt from a “CC” rating to a “C.” PRASA is Puerto Rico’s water authority.

COFINA bonds are sales tax revenue bonds. The COFINA bondholders, which include hedge funds and a local holder, are accusing Puerto Rico, its Governor Ricardo Rossello, and other government officials of trying to repurpose the tax revenue that was designated to pay COFINA debt. The bondholders want the court to stop Rossello from putting into effect a fiscal plan that the federal oversight board approved earlier this year.

COFINA plaintiffs include hedge funds such as Merced Partners, Whitebox Advisors, and Tilden Park Capital Management. Among the hedge funds to sue Puerto Rico are those collectively holding $1.4 Billion of general obligation bonds, including Monarch Alternative Capital and Aurelius Capital Management. They brought their case in Manhattan state court and they want the debt owed to them on which payments are past due plus interest.

Ambac filed four lawsuits, including two against the island, its oversight board, and the board’s members. The company insures some Puerto Rico bonds and it also wants to block the fiscal blueprint, as well as any Title III bankruptcy proceeding. Ambac also sued U.S. Treasury Secretary Steven Mnuchin.

Meantime, more lawsuits are likely, which could place Puerto Rico, with its $70 billion debt and high poverty rate, into even more financial trouble, possibly even into a Title III proceeding. This would be an in-court debt reduction process resembling bankruptcy.

Puerto Ricans Protest in the Streets
In San Juan, Puerto Rico, leading up to the midnight deadline, thousands of protestors marched in the island’s capital to express their anger over the territory’s financial woes. Unemployment there is reportedly at around 12% right now. What started as a peaceful demonstration ended with police sending smoke bombs, tear gas, and pepper spray into the crowds.

Now, the island is getting ready to raise tax revenue, reduce public employee debt, increase water rates, and take other actions to try to deal with its problems.

Puerto Rico UBS Bond Law Firm
At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud lawyers and closed-end bond fund fraud lawyers have been working with investors on the island and the mainland in helping them try to recover their losses from investing in these bonds, which began to falter nearly four years ago. If you were an investor who lost money from investing in Puerto Rico bonds, please contact our Puerto Rico UBS bond law firm today.

Unfortunately, brokerage firms and their brokers encouraged investors to back these Puerto Rico securities when they shouldn’t have. Over the past few years, Puerto Rico municipal securities claims have been brought against UBS Puerto Rico (UBS-PR), Santander Securities, Banco Popular, and others. Your first consultation with a Puerto Rico UBS bond lawyer is a free, no obligation session. Allow us to tell you how we may be able to help.

Puerto Rico sued by spate of creditors, in latest blow to teetering island, Reuters, May 2, 2017

Puerto Ricans protest on May Day as debt deadline nears, AP News, May 1, 2017

Who Are Most Exposed to Puerto Rico’s Bankruptcy? Mutual Funds and Hedge Funds, The Wall Street Journal, May 3, 2017