Sunday, August 20, 2017

Lex Claims goes after Cofina Funds to pay GO

By on October 8, 2016

A group of general obligation (GO) bondholders who had sued the government in June  to stop it from transferring funds to pay for services instead of debt, have amended its  complaint to force Puerto Rico to use Cofina funds to pay its GO debt.

The suit was amended Friday, the same day the fiscal control board filed a request seeking time to intervene in a series of cases against the commonwealth pending a ruling in U.S. District Court.

Cofina logo / file

Cofina logo / file

The plaintiffs Lex Claims, LLC, Jacana Holdings I LLC, Jacana Holdings II LLC, Jacana Holdings III LLC, Jacana Holdings IV LLC, Jacana Holdings V LLC, MPR Investors LLC, ROLSG, LLC, RRW I LLC, and SL Puerto Rico Fund II L.P , are seeking an injunction under the Puerto Rico Oversight, Management & Economic Stability Act (Promesa).

The defendants “have flouted Promesa’s provisions, running the financial affairs of the Commonwealth as if Promesa imposed no meaningful constraints on their actions.  The thrust of this strategy has been to place political advantage squarely ahead of clear legal requirements,” the plaintiffs said.

Lex Claims said the Commonwealth continues to favor certain bondholders, namely the Cofina bondholders, by siphoning off hundreds of millions of dollars in tax revenues each year to pay them in  disregard of the Puerto Rico Constitution and in violation of Promesa.

GO bonds that are explicitly protected by Puerto Rico Constitution, and are therefore protected by Promesa, they said.

The group asked the court to declare that the Commonwealth’s post-Promesa measures permitting transfers outside the ordinary course of business or in violation of Puerto Rico’s Constitution and laws to the detriment of holders of Puerto Rico’s Constitutional Debt.

They also want the court to declare that the Moratorium Act can not bind plaintiffs without their consent and that revenues diverted to Cofina are “available resources” within the meaning of Article VI, Section 8 of the Puerto Rico Constitution and that such funds can’t be transferred to Cofina or Cofina bondholders.

They noted that the Commonwealth is obligated to afford the Constitutional Debt absolute payment priority over all other expenditures, including payments to Cofina and Cofina bondholders.

For that reason, they said the commonwealth must segregate and preserve all funds clawed back, to be clawed back, or available to be clawed back under contractual and legal provisions expressly acknowledging that those funds are subject to turnover for purposes of paying the general obligation debt.

The group also wants the court to declare that an executive order that allowed the governor to clawback funds is preempted by Promesa and that the Moratorium Act is illegal.

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