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Debt Restructuring Law in Puerto Rico Sued by Hedge Fund
The brand new debt-restructuring law in Puerto Rico is facing major legal hurdles. Now, a hedge fund, BlueMountain Capital Management LLC, has joined the fight, according to The Wall Street Journal.
The hedge fund filed a lawsuit on Tuesday in federal court in Puerto Rico saying that the law is unconstitutional. The law was approved by the government of Puerto Rico back in the month of June. The law permits public corporations, highway authority and utility authority to restructure their debts. This can lead to losses for bondholders.
Other lawsuits were filed against the law back in June by Franklin Templeton Investments and OppenheimerFunds.
Puerto Rico has more than $70 billion in debt and has been struggling through an economic downturn recently. It is also dealing with high unemployment. When the government approved the bond in June it caused bond prices to drop.
“The problems raised by Puerto Rico’s massive debt burden are undoubtedly very serious, but tearing up contracts, disregarding federal law and abusing power to arbitrarily pick winners and losers is not the answer,” Theodore Olson, a lawyer at Gibson, Dunn & Crutcher LLP who is representing BlueMountain, said in a statement. “The Constitution of the United States plainly forbids that approach.”
The lawsuit claims that BlueMountain manages funds that have more than $400 million in bonds issued by the Puerto Rico Electric Power Authority.
The government of Puerto Rico issued a statement on Tuesday that said the Supreme Court of the United States has issued rulings that allow state and local governments the ability to pass their own restructuring laws. The statement said the following:
“We stand behind the act and will defend it as a reasonable and necessary measure to protect the interests of everyone associated with our public corporations and the island as a whole,” Puerto Rico Secretary of Justice César R. Miranda Rodríguez said in the statement.Hedge Fund Sues Puerto Rico for Restructuring Law by Jim Vassallo