Bond Holders Want Court|to Nail Down Puerto Rico

MANHATTAN (CN) - Puerto Rican bond holders challenged the debt-heavy commonwealth's emergency proposal to bail on bond payments.

Seven bond-holding companies, representing $3.5 million of Puerto Rican General Obligation Bonds, brought their federal complaint Tuesday in New York, challenging Puerto Rico's Emergency Moratorium and Financial Rehabilitation Act, Act No. 21-2016.

The 40-page lawsuit decries the moratorium act as Puerto Rico's attempt to dodge an upcoming July 1 due date for General Obligation Bonds' principal and interest payments $800 million.

"Given the Governor's declaration that Puerto Rico's debt is 'unpayable' and the commonwealth's decision to include its Constitutional Debt within the scope of the act, it is virtually certain that the governor will declare a moratorium to prevent the full July 1, 2016, payment from being made when due, and that the Commonwealth will default on this payment," the complaint states.

Jacana Holdings and the other bond holders seek an injunction against and invalidation of the moratorium on payments with regard to the 2014 General Obligation Bonds.

Along with the commonwealth of Puerto Rico, the lawsuit takes aim at Gov. Alejandro Garcia Padilla, Secretary of the Treasury Juan Zaragoza Gomez and Director of the Office of Management and Budget Luis Cruz Batista.

The bond holders say Puerto Rico's Legislature lacks the authority to let debtors convert their absolute and binding obligations to repay the funds they have borrowed into a discretionary option.

Jacana dubs the Emergency Moratorium and Financial Rehabilitation Act as the "latest and most flagrant step in a broader program to repudiate" the Puerto Rican government's protected $18.3 billion Constitutional Debt Priority Guarantee.

Puerto Rico's current debt totals more than $72 billion, representing nearly 70 percent of its $103 billion gross domestic product.

The lawsuit suggests that Puerto Rico currently has approximately $12.5 billion in General Obligation Bonds outstanding.

The Puerto Rico Emergency Moratorium and Financial Rehabilitation Act, 6, 2016 was signed into law on April 6, 2016, after being presented to and passed by Puerto Rico's legislature in roughly 48 hours.

Jacana criticizes Puerto Rico's unreined spending and inadequate tax collection, citing property taxes in particular, which are still based on 1958 valuations.

Property taxes are earmarked in part to fund payments on the General Obligation Bonds.

The lawsuit comes one week after the U.S. Supreme Court found that Puerto Rico's "statehood" bars the island from enforcing a bankruptcy law that would let insolvent municipalities restructure their debts over the objections of creditors.

During oral arguments in March, Justice Ruth Bader Ginsburg wondered why Congress would place Puerto Rico in a legal "Never-Never Land" by subjecting the commonwealth to Chapter 9's exemption but not its protections.

Jacana and the other bond holders that sued Monday are represented by Ariel Lavinbuk from Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP in Washington, D.C.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit