BlueMountain Capital Management LLC asked a U.S. court to block a new Puerto Rico law that would allow certain public corporations to restructure their debt, arguing that it unconstitutionally skirts federal law.
The New York-based investment firm, which holds more than $400 million in bonds issued by the Puerto Rico Electric Power Authority, said in a complaint filed today in federal court in San Juan that the utility is “highly likely to seek relief under the act imminently.”
The debt-burdened power authority, called Prepa, may miss a January interest payment to investors, according to Municipal Market Advisors, potentially triggering a restructuring larger than any by a state or local government in the U.S.
The lawsuit follows a similar case filed by Franklin Resources Inc. (BEN) and Oppenheimer Funds Inc. investment funds, which hold $1.7 billion of the commonwealth’s electric power authority bonds. Those funds sued on June 28, the same day Puerto Rico Governor Alejandro Garcia Padilla signed the restructuring law.
BlueMountain, which manages more than $20 billion in assets, alleged in its complaint that the restructuring law “creates an unlawful bankruptcy regime.”
“The United States Congress has enacted a federal Bankruptcy Code, expressly provided that states have no power to enact their own laws for adjusting debts,” BlueMountain said. It also “excluded Puerto Rico’s instrumentalities from participating in the federal bankruptcy system.”
The investment firm said in a statement that “the commonwealth and Prepa should collaborate with its investors to develop real solutions” to seek financial stability.
“We look forward to working constructively to arrive at a resolution,” BlueMountain said.
The case is BlueMountain Capital Management LLC v. Garcia-Padilla, 3:14-cv-01569, U.S. District Court, District of Puerto Rico (San Juan).
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