Puerto Rico's 2011 GOs, highway bonds face new challenges

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The list of legal challenges to repayment of Puerto Rico bonds is growing.

The Puerto Rico Unsecured Creditors Committee late Tuesday filed an objection in U.S. District Court in Puerto Rico to $1.04 billion of the commonwealth's general obligation bonds sold in 2011.

That challenge came a day after the committee and the Puerto Rico Oversight Board petitioned the Title III bankruptcy court to declare that the bondholders of Puerto Rico Highways and Transportation Authority did not have security interests to funds beyond those held by the authority or the trustee.

The GO challenge is added to the objection filed in January by the committee and the Puerto Rico Oversight Board to Puerto Rico’s 2012A, 2012B, and 2014 GO bonds. That challenged $6.2 billion in bonds.

Title III Judge Laura Taylor Swain has authorized the committee to act as a plaintiff in challenging bonds.

On Wednesday the board released a statement: “The Special Claims Committee of the Financial Oversight and Management Board for Puerto Rico determined not to join in the U.C.C. objection at this time. The Special Claims Committee continues to assess its legal options regarding the general obligation bonds issued earlier than the 2012 and 2014 issuances it has already challenged.”

In early May the board filed suits against hundreds of investors and public finance firms to claw back bond payments for GO and Public Building Authority bonds. In that action the board filed motions for GO bonds as early as the 2011 Series C issued on March 17, 2017. Thus it is now trying to claw back certain GO payments from 2011 even though it hasn’t legally challenged those bonds.

In Tuesday’s filing the committee said that if debt service on the Public Building Authority bonds were included in the calculation of the debt service limit found in Puerto Rico’s constitution, than the GOs sold from March 2011 onward would be considered illegal.

The committee challenged the 2011 Series C, D, and E GOs and the Public Improvement GO bonds sold July 12, 2011.

The committee’s law firms, Paul Hastings LLP and Casillas, Santiago & Torres LLC, made Tuesday’s filing. Luc Despins leads the Hastings group of attorneys and Juan Casillas Ayala leads the Casillas group.

The committee joined with the board on Monday in filing four complaints challenging Highways and Transportation Authority bondholder claims. The complaints name scores of individual bondholders, investment firms, trustees, and bond insurers.

Some of the bondholders have claimed that they have the right to the HTA’s highway tolls.

In Monday’s filings the Special Claims Committee of the Oversight Board and the committee ask the judge to declare that the bondholders don’t own security interests beyond the revenues the HTA has already received and deposited with the bond trustees.

As of February 2017 $4.1 billion of HTA bonds were outstanding.

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PROMESA Commonwealth of Puerto Rico Puerto Rico Highway & Transportation Authority Puerto Rico Infrastructure Financial Authority Puerto Rico Public Buildings Authority Puerto Rico Industrial Development Co Puerto Rico