Problems continue to plague Puerto Rico as its financial situation continues to deteriorate. Just recently, as things have worsened for the U.S. territory, a number of hedge funds have asked the United States District Court in San Juan, Puerto Rico to freeze the assets of the Commonwealth\u2019s Government Development Bank (\u201cGDB\u201d). The hedge funds, who are large owners of Puerto Rican debt, are accusing the bank of insolvency and spending its remaining money to help support other sectors of the island\u2019s beleaguered government.<\/p>\n
The plaintiffs in the case include Claren Road Asset Management and Brigade Capital Management. The hedge funds reportedly hold about $3.75 billion of the bank\u2019s debt.<\/p>\n
In their lawsuit, the hedge funds said that the GDB has not provided the financial data that creditors have requested. They want the Court to prohibit additional cash transfers except for those that are necessary. The hedge funds do not want public entities, municipalities, and other depositors to be able to take their money out.<\/p>\n
The plaintiffs expressed concern that should the GDB run out of funds, a lot of essential services may have to stop and creditors would sustain significant losses. The GDB has a debt payment due on May 1 of about $422 million. In response to the hedge funds\u2019 case, GDB President Melba Acosta-Febo claimed that the accusations made in the complaint are \u201cerroneous\u201d and allegations that the GDB knowingly kept back financial information in order to preference deposits over bondholders are \u201cwholly false.\u201d<\/p>\n
The hedge funds believe that GDB kept giving loans even while knowing these loans would likely not be repaid.<\/p>\n