Puerto Rico Lenders Said to Hire Davis Polk, Form New Group

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A group of Puerto Rico bondholders hired the law firm Davis Polk & Wardwell to protect their investments as the island seeks to restructure its $72 billion of debt, according to three people with knowledge of the matter.

At least four firms that own securities issued by the U.S. commonwealth’s Government Development Bank have joined the group, said two of the people, who asked not to be identified because the matter is private. The group includes Brigade Capital Management, Candlewood Investment Group, Fir Tree Partners and Perry Corp., said the people.

Puerto Rico’s bondholders are examining their options after Governor Alejandro Garcia Padilla said last month that his administration would attempt to put off payments on some obligations. The comments by Garcia Padilla, who called on officials to come up with a debt-restructuring plan by Aug. 30, triggered the biggest price decline in the commonwealth’s general-obligation debt in at least two decades.

Susan Peters, a spokeswoman for Davis Polk, and Michael Neus, general counsel at Perry, didn’t return telephone and e-mail messages seeking comment. Aaron Daniels, associate general counsel for Brigade, Michael Lau, chief executive officer of Candlewood, and Scott Tagliarino, a spokesman for Fir Tree at ASC Advisors, declined to comment.

September Deadline

The new group was formed to represent bondholder interests in the exchange offers that are expected from Puerto Rico officials, said two of the people. It also could pursue other strategies, they said.

The creditors of the GDB have been working for weeks to organize as the island lurches toward a September deadline when the development bank is expected to run out of cash, people with knowledge of the matter told Bloomberg last month.

The GDB’s liquidity has waned as it’s lent more to other government agencies on the junk-rated island. Net liquidity declined nearly 25 percent to $778 million at the end of May from a month earlier, according to data released on the bank’s website.

Some of the members of the new GDB group overlap with another set of creditors who’ve been active for at least a year in a group that holds $4.5 billion of general obligation, development bank and sales-tax bonds known as Cofina bonds after the Spanish acronym for the Puerto Rico Sales Tax Financing Corp. Fir Tree Partners and Monarch Alternative Capital lead that group, which also includes Brigade, Centerbridge Capital Partners, Davidson Kempner Capital Management and Stone Lion Capital.

Legal Fight

That group began preparing itself for a potential legal fight in May, retaining Washington-based law firm Robbins, Russell, Englert, Orseck, Untereiner & Sauber, people with knowledge of the hire told Bloomberg in May. The firm represented hedge fund Aurelius Capital Management in its fight to get paid back after Argentina defaulted.

Another group of creditors formed within the last several weeks to protect holders of Cofina bonds, according to the attorney at Quinn Emanuel Urquhart & Sullivan that represents it. The law firm is “devoted solely to business litigation and arbitration,” it says on its website.

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