\t\t\t\tA federal judge has ruled that general obligation bondholders in Puerto Rico may go ahead with a securities fraud lawsuit arguing that the U.S. territory\u2019s government has to pay them what they are owed even as it pays off other bondholders and workers and restructures its nearly $70 billion of debt. U.S. District Court Judge Francisco Besosa said the bondholders\u2019 case could proceed despite a new law that has placed a stay on the majority of creditors\u2019 legal actions brought against Puerto Rico.<\/p>\n
Owners of general obligation bonds which includes individuals and hedge funds such as Monarch and Aurelius, are arguing that Puerto Rico general obligation bonds are supposed to be constitutionally guaranteed, therefore other Puerto Rico obligations cannot be paid before general obligation bondholders. Judge Besosa said that because the general obligation bondholders\u2019 debt lawsuit does not seek to get any kind of payment from the territory or confiscate commonwealth property, the case should be exempted from the stay.<\/p>\n
Following Judge Besosa\u2019s ruling, creditors of COFINA bonds, Puerto Rico’s sales tax authority, are now asking a federal court to keep the island\u2019s government from being told to redirect bond payments to the general bond holders. The COFINA plaintiff group, which includes funds holding more than $2 billion in debt and also hedge funds such as Canyon Capital and Goldentree, contend that the general obligation bondholders\u2019 claims are \u201cself-serving\u201d and without merit.<\/p>\n