Puerto Rico’s longstanding pledge to pay off about $13 billion of outstanding general obligation (GO) bonds is just an unsecured promise, according to the latest lawsuits brought by the bankrupt U.S. commonwealth’s federally created financial oversight board, Reuters reported. Its action capped off a barrage of litigation this week that unsettled the $3.8 trillion U.S. municipal market, where states, cities, schools and other issuers sell debt. Complaints were filed in U.S. District Court in Puerto Rico late on Thursday against GO bondholders, including mutual funds and other institutional and individual investors who contend they have a lien on the island government’s revenue. The board countered that Puerto Rico’s pledge of its “good faith, credit and taxing power” is “nothing more than a promise to pay” and that promise is not secured by any of the government’s property. Even if a lien existed under local law, it would be avoidable under bankruptcy law, according to the lawsuits. The lawsuits were filed ahead of the second anniversary of Puerto Rico’s May 3, 2017, bankruptcy, which seeks to restructure about $120 billion of debt and pension obligations.
