A U.S. federal judge yesterday dismissed a lawsuit by some of Puerto Rico’s bondholders, who had argued that the U.S. territory broke the law by defaulting on constitutionally-guaranteed debt despite having the money to make payments, Reuters reported. Judge Laura Taylor Swain, who is overseeing Puerto Rico’s bankruptcy, did not address the merits of the bondholders’ claims, concluding that she lacked jurisdiction over some of them, and that others were not fit to be ruled on. The dismissal is a setback to owners of roughly $18 billion in general obligation (GO) bonds guaranteed by Puerto Rico’s constitution and taxing power. A win would have helped establish the top priority of GO debt relative to other credits in Puerto Rico, a central question as warring creditor classes litigate competing claims to the island’s limited funding streams. Puerto Rico has $120 billion in combined bond and pension debt, and its finances are under the oversight of a federally-appointed board. GO bondholders have accused the oversight board and the Puerto Rican government of unlawfully steering revenues away from them.
