Hedge funds holding Puerto Rico bonds sued the U.S. government, the first time creditors have tried to put federal taxpayers on the hook for losses suffered in the island’s debt crisis, The Wall Street Journal reported on Thursday. A bondholder group represented by the Jones Day filed suit in the U.S. Court of Federal Claims. Creditors have been suing Puerto Rico since early last year over an escalating series of debt defaults, but never before has a group targeted Uncle Sam directly for damages. Plaintiffs including Glendon Capital Management LP and Oaktree Capital Management LP are facing possible losses on bonds issued in 2008 to prop up Puerto Rico’s struggling pension fund. Their lawsuit blames the federal oversight board that was installed by Congress to dig the island economy out from its $73 billion debt load. The seven-member board placed Puerto Rico’s largest public retirement fund under bankruptcy protection in May to restructure those $3 billion in pension bonds. Preventing a taxpayer bailout for Puerto Rico’s financial woes was a priority for House Speaker Paul Ryan (R-Wis.) and congressional Republicans who designed Puerto Rico’s rescue package. PROMESA “isn’t a bailout,” according to a statement from Mr. Ryan’s office last year. “It preserved that critical principle of protecting taxpayers.”
