A relatively paltry $16 million has ignited a skirmish among bondholders over who will get paid first and who does not in Puerto Rico’s $74 billion bankruptcy, Bloomberg News reported yesterday. The dispute revolves around interest that’s due June 1 to holders of sales-tax bonds known as Cofinas. Mathematically, the $16 million is barely a rounding error. About $400 million collected from sales taxes is being held in trust — enough to cover next week’s payment more than 20 times over. The problem is that Puerto Rico probably won’t have enough cash to pay back all of the $17 billion of Cofinas, so senior and junior holders are concerned that this small payment will set the pattern for who gets reimbursed. Additionally, holders of the island’s general-obligation bonds are watching closely because they’ve made claims on the same stream of revenue. The General Obligation and Cofina groups each contend that they have first priority to be repaid, and say their rivals should get little or nothing because those bonds were issued illegally. Bank of New York Mellon Corp., the Cofina trustee caught in the middle, filed court papers earlier this month asking the judge for guidance on what it should do on June 1, if anything. A hearing is scheduled for May 30 in New York with U.S. District Judge Laura Taylor Swain. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
