OppenheimerFunds, Franklin Advisers and other major bondholders of Puerto Rico municipal bonds moved to intervene as a defendant late Tuesday in a lawsuit brought by an opposing group of hedge fund bondholders challenging the direction of tax revenues to bondholders.
The hedge fund group, which includes Aurelius Capital Management, Autonomy Capital, Covalent Partners, FCO Advisors, Monarch Alternative Capital and Stone Lion Capital Partners, sued in U.S. District Court in San Juan in July to allow sales tax revenue to be used to repay general obligation bondholders, adding the agency, Corporación del Fondo de Interés Apremiante, which issues sales-tax-related Cofina bonds, as a defendant in October.
Hedge funds, mutual funds and retail investors each hold roughly one-third of the Puerto Rican debt. The major Cofina bondholders group, with $3.6 billion, has “the largest stake in this litigation (and) cannot rely on any other party to protect their interests,” according to the motion to intervene, which seeks to enforce a stay on litigation until late February 2017 that was part of the Puerto Rico Oversight, Management and Economic Stability Act enacted by Congress in June to create a fiscal oversight board.
“It's a positive for Puerto Rico, the board and the new administration that major, longstanding investors holding both GO and Cofina bonds are stepping forward to defend PROMESA's stay provision and reject more litigious GO bondholders' attempts to seize (sales tax) revenue,” said James Doak, managing director of Miller Buckfire & Co., who is advising a Cofina senior bondholders group, in a statement.