BlueMountain Capital Management, LLC filed a lawsuit on Tuesday against the government of Puerto Rico, challenging the legality of a new law that allows certain public corporations to avoid their debts.
Funds managed by BlueMountain Capital are Puerto Rico Electric Power Authority power revenue bond holders.
PREPA is widely considered the most likely public corporation to seek to avoid its debts under the Puerto Rico Public Corporation Debt Enforcement and Recovery Act, which was enacted on June 28, 2014, also known as Law 71.
“Puerto Rico’s new debt avoidance law breaks faith with PREPA’s investors by erecting an unconstitutional bankruptcy regime to subvert their contractual rights – which is exactly what the Commonwealth promised it would never do,” said former United States Solicitor General and lead counsel for BlueMountain Capital, Theodore B. Olson of Gibson, Dunn & Crutcher.
“The problems raised by Puerto Rico’s massive debt burden are undoubtedly very serious, but tearing up contracts, disregarding federal law, and abusing power to arbitrarily pick winners and losers is not the answer,” he said.
“The Constitution of the United States plainly forbids that approach. We will ask the courts to enforce the Constitution, to halt the damage that the Commonwealth’s new bankruptcy law is inflicting on investors, and to require the Commonwealth to respect the rule of law and live up to its agreements,” he concluded.
PREPA spokespersons said the agency would not be reacting to the lawsuit filed Tuesday in the U.S. District Court of Puerto Rico.
Meanwhile, BlueMountain Capital said: “We regret that we have no other way to ensure our legal, contractual rights than to file a complaint in the court system. Rather than walking away from contracts, the Commonwealth and PREPA should collaborate with its investors to develop real solutions that put PREPA, the Commonwealth and its institutions on a path to financial stability.”
“These solutions exist. We look forward to working constructively to arrive at a resolution,” the company with offices in New York, London, and Tokyo stated.