Hedge Funds and Pensioners Scramble For Debt Payment Owed To Them By Puerto Rico

In the wake of Puerto Rico’s bankruptcy filing, hedge funds are competing with the U.S. territory’s workers to get paid. The island has guaranteed retirees and workers $49 Billion in benefits. However, the federally appointed oversight board expects that it will have to cut pension costs by 10%.

Even worse for bondholders, they could get less than 25% of what bondholders are owed. This is true even for bondholders with General Obligation debt, which was supposed to have been constitutionally guaranteed. Creditors that own COFINAs, Puerto Rico sales tax bonds, are being offered up to 58 cents on the dollar should the territory’s finances get better. Both sides will appear in federal court in San Juan Puerto Rico in an attempt to try to work out a deal.

It was just recently that Puerto Rico’s oversight board submitted for Title III bankruptcy protection to help lower Puerto Rico’s $74 Billion of debt and deal with the Commonwealth’s pension crisis. Under Title III, the island can make pension recipients accept reduced benefits.

Now, a coalition made of retiree groups have requested that U.S. District Judge Laura Taylor Swain, who is assigned to preside over Puerto Rico’s bankruptcy case, establish an official committee representing pensioners who worked for the government. This group has not been allowed into negotiations involving the territory and bondholders. Also, a labor group representing over 12,300 Commonwealth workers and retirees want a court to decide that Puerto Rico Governor Ricardo Rossello’s fiscal plan is illegal because of the pension cuts it is proposing. Their complaint is on hold at the moment.

Earlier this month, hedge funds holding $1.4 Billion of general obligation bonds that were sold three years ago filed a lawsuit against Puerto Rico asking for payments to them that were past due. Hedge funds holding $1.9 Billion of COFINAs sued to prevent Governor Rossello’s fiscal plan from redirecting revenues from sales taxes to a general fund.

Last week, the Puerto Rico bonds from the territory’s municipal junk offerings in 2013 dropped in value. General obligation bonds, issue at 93 cents on the dollar, traded at about 51.9 cents in over $1 million of trades on May 9. Smaller lots were bought for 58.4 cents.

Not long after Puerto Rico filed for bankruptcy protection, bond insurer Assured Guaranty Ltd. sued the territory’s federal oversight board, accusing it of going beyond its purview when it ordered that no more than $797 Million be paid yearly in debt service for the next 10 years. That figure is less than 25% of the $3.5 Billion owed on average to creditors annually.

Puerto Rico Bond Fraud
At the SSEK Partners Group, our Puerto Rico bond and bond fund lawyers are working with investors on the island and the mainland. We represent clients seeking to recoup the money they lost from investing in Puerto Rico bonds and bond funds. For many retail investors and business owners, these investments were too risky for their portfolios and not in alignment with their investment goals. Yet, brokerage firms such as UBS Puerto Rico (UBS-PR), Santander Securities (SAN), Oriental Securities, and Banco Popular continued to push these municipal bonds onto customers, many of whom have not gotten their money back. For a free case consultation, contact our Puerto Rico UBS bond lawyers today.

Hedge Funds Vie With Puerto Rico Workers Over Getting Paid First, Bloomberg, May 12, 2017

Puerto Rico Bond Insurer Becomes First to Challenge Restructuring Plan, The Wall Street Journal, May 4, 2017