Puerto Rico credit sues BNY over sales tax bonds

Published: Apr 12, 2017 3:52 p.m. ET

A Puerto Rico creditor is taking legal action against bond trustee Bank of New York Mellon over sales tax revenues supporting $17 billion in debt, another complication for restructuring negotiations ahead of a critical May 1 deadline.

Lawyers for Whitebox Advisors LP filed suit Wednesday against BNY in New York state court, opening another front in the legal wrangling over the sales-tax bonds known as Cofinas that make up a large chunk of Puerto Rico's $70 billion debt.

The lawsuit also arrives at a crucial moment for restructuring negotiations, with less than three weeks remaining until creditors are exposed to a possible bankruptcy filing by the struggling U.S. territory. A spokesman for BNY, the Cofina bond trustee, didn't immediately respond to a request for comment.

Minneapolis-based Whitebox is arguing that BNY breached its duties to holders of senior Cofina bonds by continuing to pay down junior creditors, even after Puerto Rico signaled it was seeking concessions across its varying debts. A group of hedge funds led by Whitebox holds roughly $2.5 billion in senior Cofina bonds.

Other creditors in the group support the lawsuit but aren't plaintiffs themselves, according to people familiar with the matter. The lawsuit seeks a court order declaring that BNY has a conflict of interest and preventing further disbursements to junior creditors. Whitebox is also asking for money damages.

It isn't the first time Bank of New York has become a legal target in its role overseeing payments between troubled governments and their bond investors. The bank also served as trustee for Argentine bonds during the South American republic's yearslong standoff with holders of its defaulted sovereign debt. Some of those creditors in 2014 sued Bank of New York in London over payments the republic refused to make, while Argentina revoked the bank's authorization to operate there.

Puerto Rico is scheduled to enter confidential talks with Cofina creditors on Thursday. The private negotiations will also include holders of competing general-obligation debt, some of whom have sued to invalidate the Cofina bonds as an unconstitutional diversion of tax resources.

Creditors have less than three weeks to reach consensual settlements before the federal board overseeing negotiations can attempt to place Puerto Rico in bankruptcy. Negotiations are based on a board-approved fiscal plan that allocates roughly $800 million to debt service, or roughly a quarter of what is owed under existing bond contracts. Creditors have said the plan violates a federal requirement that repayment schemes respect the "relative lawful priorities or lawful liens" on Puerto Rico bonds.

Gov. Ricardo Rossello has reached only one voluntary agreement with creditors so far, a $9 billion deal covering the public electricity monopoly known as Prepa.


What does TCPR mean in Business & Finance

What does TCPR stand for?

TCPR stands for "Toyota Credit de Puerto Rico"

How to abbreviate "Toyota Credit de Puerto Rico"?

"Toyota Credit de Puerto Rico" can be abbreviated as TCPR

What is the meaning of TCPR abbreviation?

The meaning of TCPR abbreviation is "Toyota Credit de Puerto Rico"

What does TCPR mean?

TCPR as abbreviation means "Toyota Credit de Puerto Rico"