The alleged defaults stem from the controversial fiscal plan that Puerto Rico's oversight board adopted as its framework for restructuring a $73 billion mountain of public debt. Creditors holding Cofina bonds, which Puerto Rico began issuing a decade ago as an alternative way to borrow, have continued to be paid even after Puerto Rico stopped servicing other debts. Whitebox Advisors LLC, a holder of senior bonds, and Ambac Assurance Corp., which guarantees senior bonds, recently sued Bank of New York complaining that the trustee had failed to protect their interests and prioritize their holdings over those of junior creditors. Accelerating the maturity of senior bonds after a default would put their claims ahead of subordinated holders that include some of Puerto Rico's largest mutual-fund creditors. Negotiations between Puerto Rico and major creditor groups collapsed last week when the territory indicated it wanted deeper debt concessions from Cofina creditors than from competing general obligation bondholders.

Source: Wall Street Journal May 05, 2017 23:48 UTC