What the hedge funds can do that individual small investors cannot is constantly harass and nip the heels of Puerto Rico, thus possibly securing higher payment eventually. Bloomberg summarizes the major suits against Puerto Rico that deal with debt repayment:
1. Assured Guaranty Corp. vs. Puerto Rico and its Highways and Transportation Authority: The bond insurer sued late July 21 in a federal court in San Juan, seeking an emergency removal of Promesa’s stay and to stop Puerto Rico from taking toll revenue that repays the agency’s bonds and instead using those funds for other expenses. Assured guarantees repayment on approximately $1.2 billion of Highways debt, according to the compliant.
2. Hedge funds holding general-obligation and commonwealth-guaranteed bonds vs. Garcia Padilla: Aurelius Capital Management, Autonomy Capital, Covalent Partners, FCO Advisors, Monarch Alternative Capital and Stone Lion Capital Partners filed suit July 20 in a federal court in San Juan to stop Puerto Rico from transferring funds away from bondholders. The hedge funds say it violates the Promesa law since the federal legislation prohibits the island from enacting new laws diverting revenue or assets that would violate its constitution.
3. Hedge funds holding 2014 general-obligation bonds vs. Puerto Rico: Aurelius, Autonomy, FCO Advisors and Monarch sued the commonwealth on June 21 in Manhattan federal court, claiming the island cannot use its debt-moratorium law to suspend payments on the 2014 bonds. Puerto Rico’s constitution states that if commonwealth resources are insufficient to meet all of its desired spending, then public debt will be paid first, according to the complaint. Puerto Rico on July 19 filed a notice in the case, claiming the suit falls within Promesa’s stay provision. The court will address that notice. The 2014 general-obligation sale is the only commonwealth bond issuance where creditors can sue in a court off of the island.
4. National Public Finance Guarantee Corp. vs. Garcia Padilla: The bond insurer filed suit on June 15 in a federal court in San Juan, seeking to limit the island’s debt moratorium law. National claims federal bankruptcy law preempts the moratorium legislation. It also violates the U.S. Constitution because it takes the insurer’s property without just compensation and impairs contract rights, National says. The firm insures about $3.8 billion of debt issued by Puerto Rico and its agencies, according to the complaint. Puerto Rico claims Promesa’s stay halts National’s suit.
5. Ambac Assurance Corp. vs. Puerto Rico Highways and Transportation Authority: The bond insurer filed suit on May 10 in a federal court in San Juan, requesting an immediate receiver to manage the Highways agency and claiming that a contract with a third-party operator may divert $115 million away from the Highways authority, which could affect repayment of debt. Ambac guarantees repayment about $472 million of Highways debt, according to the complaint.
6. Hedge funds vs. Puerto Rico’s Government Development Bank: Affiliates of Brigade Capital Management, Claren Road Asset Management, Solus Alternative Asset Management and Fir Tree Partners, which hold Government Development Bank debt, sued the bank on April 4 in a federal court in San Juan. The firms want to stop the bank from directing funds to local agencies as the GDB restructures its debt. The hedge funds on May 20 amended their complaint, seeking to invalidate portions of the island’s debt moratorium law.
7. Bond insurers vs. Garcia Padilla: Assured and Ambac sued the governor on Jan. 7 in a federal court in San Juan to stop Puerto Rico from taking revenue originally used to pay certain agency bonds and using that money instead to cover general-obligation bonds, called a claw back. The insurance companies claim it violates the U.S. Constitution because the action deprives them of their property rights. Financial Guaranty Insurance Co. filed a similar suit on Jan. 19.