SAN JUAN – A group of hedge funds holding the debt of the Government Development Bank for Puerto Rico on Monday filed a complaint in U.S. federal court in San Juan to block certain transfers of assets by that entity, the local government’s insolvent financial arm.
The plaintiffs, a group of funds based in New York and the Cayman Islands that says it holds $3.75 billion of the GDB’s roughly $5 billion in outstanding debt, said in a statement they were seeking to block “preferential payments” that have been occurring in violation of Puerto Rican law.
They said they were not looking to block payments strictly related to the provision of public services that are essential to public safety or to cover “ordinary course” operating expenses of the GDB, such as employee wages.
In the complaint, the plaintiffs said they were seeking to enjoin certain preferential asset transfers amid the bank’s insolvency and expectations that it will miss a $422 million bond payment on May 1, which would be the first major default by an entity on the U.S. commonwealth.
The hedge funds noted that the GDB had broken the law by continuing to make payments to “certain creditors” and demanded that those transfers immediately cease until the bank’s debt is duly restructured and it is no longer at risk of liquidation.
Founded in 1942, the GDB develops financial strategies for the U.S. commonwealth and Puerto Rican government agencies and plays a key role in helping finance the island’s economic infrastructure projects.