Six hedge and investment funds holding Puerto Rico general obligation bonds sued Puerto Rico leaders Wednesday, seeking to have the government use its money to pay GO bonds.
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The plaintiffs cite section 204 (c) (3) of the Puerto Rico Oversight, Management, and Economic Stability Act. This states that after the act covers the territory but before the oversight board is seated, Puerto Rico "shall not enact new laws that either permit the transfer of any funds or assets outside the ordinary course of business or that are inconsistent with the constitution or laws of the territory as of the date of enactment of this act."
They argue that the government in July has broken this PROMESA passage in three ways.
First, it has done so by retaining hundreds of millions of dollars in cash that had been clawed back from other entities for the purpose of paying the GO debt, without using it to pay the debt.
Second, they say that the government's approved fiscal year 2016-2017 budget increases the contribution to Puerto Rico's pension system to $800 million from $650 million in the previous fiscal year. Further, they complain that the governor may sign another measure that would add $170 million to this funding the current fiscal year.
Third, they say the budget "diverts approximately $250 million from the general fund to prop up the insolvent Government Development Bank or to replace certain GDB functions – and, again, pending legislation would increase that amount by $115 million."
The plaintiffs ask the court to not implement to the latter two actions, which they say PROMESA prohibits. They also ask the court to order the defendants to segregate the clawed back funds for use to pay the GO bonds.
The plaintiffs are Aurelius Capital Management, LP; Autonomy Capital (Jersey) L.P.; Covalent Partners LLC; FCO Advisors LP; Monarch Alternative Capital LP; and Stone Lion Capital Partners L.P. The defendants are Puerto Rico Gov. Alejandro García Padilla, Secretary of the Treasury Juan Zaragoza Gomez, and Director of the Office of Management and Budget Luis Cruz Batista.
Raúl Arias-Marxuach is the lead plaintiff lawyer. He works at McConnell Valdés LLC, which is based in Hato Rey, Puerto Rico.
Puerto Rico didn't immediately respond with a comment.
