January 16, 2019 Comments (0) Blog

Board Attempts to Invalidate $6B of Puerto Rico Debt

Puerto Rico go bonds

Federal Board Attempts to Invalidate $6 Billion in Puerto Rico Bondholder Debt

After an investigation of all debt issued by Puerto Rico, a federal control board seeks to invalidate more than $6 billion worth of debt.

According to reports yesterday, the board that oversees Puerto Rico’s finances stated this week that the debt includes all general obligation bonds (GO Bonds) that were issued in 2012 and 2014 in “clear violation” of debt limits established by Puerto Rico’s Constitution.

The motion, which includes a group of unsecured creditors, also said the debt violates balanced budget requirements because the money was used to finance deficit spending.

If a federal judge agrees with the allegations, Puerto Rico GO bondholders would lose their investments.

According to reports, it is unclear when a judge would rule on the board’s motion.

It is possible that those who bought general obligation bonds during that time might accept a big cut instead of risking a total loss, the majority of which are hedge funds, not individual investors, according to reports.

The island’s Government Development Bank, which ceased operations in March, issued loans and oversaw debt transactions.

Puerto Rico is reportedly trying to restructure part of the $70 billion in public debt, and a federal judge is scheduled to hold a two-day hearing starting Wednesday on a major debt restructuring case involving bonds backed by a sales-and-use tax.

Puerto Rico declared bankruptcy in May 2017.

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