A group of hedge funds in New York that invested in Puerto Rico general obligation bonds are suing the island\u2019s government. The bond lawsuit came just days before the island is expected to default on a $2 billion debt payment due, including over $700 million in general obligation bonds on July 1, and on the same day that the island announced it was ending talks with bondholders about debt payments.<\/p>\n
The negotiations has resulted in a number of failed proposals and counterproposals, but no resolutions. The U.S. Commonwealth continues to owe $70 billion in public debt, including $12.5 billion in general obligation debt.<\/p>\n
The hedge funds\u2019 complaint seeks to invalidate a law allowing Puerto Rico Governor Alejandro Garcia Padilla to put into effect a temporary debt moratorium. The bondholders contend that when they purchased the general obligation bonds, they had counted on the protection that was supposed to guarantee the bonds under the territory\u2019s constitution.The hedge funds are arguing that they are entitled to be paid first\u2014and in full\u2014and on time. They claim that the the moratorium cannot be applied to the bonds that they hold. Also, the hedge funds are accusing the Puerto Rico government of improperly diverting tax revenue to the Puerto Rico Sales Tax Financing Corp. (COFINA) so more debt could be issued while bondholders were not paid.<\/p>\n