On January 4, Puerto Rico defaulted on $37 million of debt payments on bonds issued by the Puerto Rico Infrastructure Finance Authority and the Puerto Rico Public Finance Corp. More debt will come due over the next weeks and months, and bondholders have a small range of options for protecting their interests.
“Lawsuits can already be filed,” explained David J. Fernandez, shareholder in Buchanan’s Public Finance practice, to The Bond Buyer. “It is, however, more likely that more aggressive negotiations will occur in an attempt to find some way to address the interests of the affected bondholders prior to their diving into the uncertainty of a court action. If, however, the impasse continues and the declarations by the commonwealth of its inability to meet its obligations persist, the affected bondholders may decide that entering the courts and forcing action on the existing assets may be the best option for maximizing their returns.”
Chapter 9 bankruptcy is another option, which Fernandez said he favored.
“By not acting, the federal government is giving the litigation route entry to some very uncharted waters, and with that uncertainty will come additional problems,” he said.
Read the full article (subscription required) – “It's Bondholders' Move After Puerto Rico Defaults” (The Bond Buyer, January 5, 2016)