In Manhattan federal court, U.S. District Judge Laura Taylor Swain has blocked a $16.3 million interest payment that is due to COFINA bondholders on June 1 (COFINA bonds are those issued by the Puerto Rico local taxing authority and that are supposed to be supported by Puerto Rico sales taxes). Judge Swain said that future payments also have been suspended until a number of disagreements over who should receive the funds are settled. This marks the first time a payment on COFINA bonds will not be made.
Judge Swain is tasked with presiding over Puerto Rico’s Title III bankruptcy case, which is meant to restructure the over $70 billion of debt that the U.S. territory owes. In addition to this latest halt, Swain has decided to wait to resolve two other disputes, including whether COFINA is in default on the $17 billion of debt that is its responsibility and if general obligation bondholders are entitled to receive sales-tax receipts that are backing COFINAs as payment.
Although general obligation bondholders and COFINA holders have been in disagreement over bond payments for some time, fighting also has now erupted among senior COFINA holders and junior COFINA holders regarding how interest should be distributed, with the senior contingency claiming that they should receive full payment before the junior COFINA holders receive anything. Junior COFINA holders want $5 million of the interest on subordinated bonds. They also want their claim on COFINA funds preserved.
To make matters worse, general obligation bondholders want to get paid from revenue tied to COFINA bonds. This bondholder group is owed their next bond payment on July 1. A $277 million payment is due to them on August 1.
The $16.3 million bond payment that is due this week will now be put into escrow until the judge decides to whom the payment belongs. Future payments will be escrowed as well.
Puerto Rico Governor Ricardo Rossello had tried to get Judge Swain to let the payment go through. His government believes that freezing the funds, per the request of bond trustee Bank of New York Mellon (BK), would place COFINA into default, which, according to Governor Rossello, could lead to more claims.
In other Puerto Rico debt news, the Puerto Rico government has arrived at a settlement with Government Development Bank (GDB) loan and bond creditors. This means that about $5 billion in notes, bonds, and loans are being settled. Seeking Alpha reports that creditors were offered approximately 50 cents on the dollar pending Title III bankruptcy court approval. The investment research platform described this deal between the now-defunct GDB and the Puerto Rico government as two parties “colluding to provide unlawful recoveries” at the expense of the territory’s residents.
Puerto Rico Bond Fraud Claims
Even as the island seeks to resolve its debt problems in bankruptcy proceedings, our Puerto Rico bond fraud lawyers and closed-end bond fraud attorneys are continuing to work with investors in recouping their losses. Thousands of investors are seeking to get back their investments from these Puerto Rico securities.
Many were told that the bonds were safer and less risky than what was the reality. As a result, many investors suffered. Shepherd Smith Edwards and Kantas, LTD LLP handles Puerto Rico bond fraud claims against brokerage firms, including those from Banco Popular, Santander Securities (SAN), UBS Puerto Rico (UBS-PR), and others. Contact us today.
Puerto Rico Judge Halts Payment to Sales-Tax Bondholders, Bloomberg, May 30, 2017
The PROMESA Act: A Bailout Of Irresponsible Administrations In Puerto Rico – Will It Be Challenged In The Supreme Court, Seeking Alpha, May 30, 2017
Puerto Rico Bankruptcy Judge Freezes Bond Payments, The Wall Street Journal, May 30, 2017