Bond insurer National Public Finance Guaranty filed a motion on Monday in a court seeking an investigation of likely illegal hedge fund trading of Puerto Rico bonds during mediation over those bonds, Bond Buyer reported. National filed the motion Monday afternoon in the U.S. District Court for the District of Puerto Rico, which is overseeing the Puerto Rico Oversight, Management, and Economic Stability Act’s Title III bankruptcy process. In the motion, National focuses on the period from May 31, 2019, when parties signed an initial Plan Support Agreement for Puerto Rico’s central government debt, to the present. During the period, there is “substantial reason to believe” that some hedge fund mediation participants illegally traded in the bonds, according to National. U.S. District Judge Laura Taylor Swain barred participants from trading in the bonds while participating in mediation. On Feb. 9, 2020, the Puerto Rico Oversight Board announced it had reached a new Plan Support Agreement with hedge fund groups and that the new plan had much more generous terms for late vintage bonds. In its motion, National said that member hedge funds of three negotiating groups — the Lawful Constitutional Debt Coalition, the QTCB Noteholder Group, and the Ad Hoc Group of Constitutional Debtholders — had greatly increased their holdings between the first and second PSA, and that this raised “serious concerns.” Read more.
In related news, a bankruptcy and corporate law professor will be the new chairman of a federal control board that oversees Puerto Rico’s finances, officials announced on Tuesday, the Associated Press reported. Prof. David Skeel will replace José Carrión, who had led the board since the U.S. Congress created it in 2016 as the U.S. territory struggled through an economic crisis and sought to restructure a portion of its more than $70 billion public debt load. It was the biggest municipal bankruptcy filing in U.S. history. Carríon had announced in July that he was stepping down, and two other board members have stepped down since. Those two other positions have not been filled. Read more.
