SAN JUAN, Puerto Rico (AP) — Holders of bonds from Puerto Rico's Government Development Bank are suing to challenge aspects of a debt-moratorium law that island officials say is crucial to maintaining essential services as the U.S. territory struggles under a nearly $70 billion debt load.
The amended federal lawsuit filed late Friday in the U.S. District Court in San Juan names Puerto Rico's governor and treasury secretary as well as an unidentified bank receiver. It argues that amendments to the law prioritize the rights of certain creditors at the expense of others in violation of U.S. and Puerto Rican law.
Phone calls to the Office of the Governor went unanswered Saturday, and officials did not immediately respond to messages seeking comment. Island authorities have said in the past that they expected creditor lawsuits in the absence of bankruptcy protections.
The Ad Hoc Group behind the lawsuit comprises five investment funds that hold $900 million of the GDB's nearly $4 billion in outstanding debt.
The GDB defaulted on the bulk of a $423 million payment due May 1, but also announced a tentative debt-restructuring deal with the group that would offer it a recovery rate of about 50 cents on the dollar.
"Notwithstanding the Commonwealth's unconstitutional actions, the members of the Ad Hoc Group understand that the Commonwealth faces significant challenges and want to continue working with GDB, as they have for over a year, to achieve a fair, equitable and mutually beneficial restructuring," the bondholders said in a statement.
Other creditors are also challenging an executive order issued this year by Gov. Alejandro Garcia Padilla to "claw back" revenue supporting different bonds and use the money for to pay for essential services and government debt obligations.
And this month, bond insurer Ambac Assurance Corp. filed suit to seek the appointment of a receiver at the Puerto Rico Highways & Transportation Authority, charging that the government was illegally taking money from the public corporation to pay for other debts.
Puerto Rico government entities are barred from using federal bankruptcy laws, and a local bankruptcy law was struck down as unconstitutional by federal courts. Officials say that because Puerto Rico is barred from reorganizing debts under a bankruptcy framework, they have no choice but to use the new law to declare debt moratoriums to maintain essential public services.
The House Committee on Natural Resources will hold a markup session next Tuesday and Wednesday on legislation to address Puerto Rico's fiscal crisis. The measure would create an oversight board to ensure that Puerto Rico begins running balanced budgets and would also have the power to authorize the restructuring of existing debt.
The U.S. Supreme Court is also reviewing decisions that overturned the local bankruptcy law.
