Hedge funds holding debt in Puerto Rico’s Government Development Bank sued to stop the island’s key fiscal entity from making payments to local government agencies as it faces a growing cash shortage and the prospect of insolvency, Bloomberg News reported yesterday. The funds, which include affiliates of Brigade Capital Management, Claren Road Asset Management and Solus Alternative Asset Management, accused the bank in a lawsuit filed yesterday in San Juan federal court of seeking to “prop up” local agencies at the expense of other creditors. The situation may imperil restructuring efforts for the bank, which its regulator says is facing a cash shortfall of as much as $1.3 billion in June. Puerto Rico, which is negotiating with creditors to reduce a $70 billion debt load, has “had every incentive to cannibalize” the bank to “meet its own liquidity needs through preferential transfers even if such transfers make it impossible to restructure” the bank, the hedge funds said in the complaint. Read more.
ABI Resident Scholar Prof. Melissa Jacoby speaks with Prof. Charles Tabb about his research on bankruptcy and the Fifth Amendment's "takings" clause to current legislative proposals for remedying Puerto Rico's debt crisis. Click here to listen.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
