January 15, 2019 / 4:23 AM / in 4 months

Puerto Rico oversight board asks court to invalidate $6 billion GO bonds

SAN JUAN (Reuters) - Puerto Rico’s federally appointed fiscal oversight board announced late Monday that it will seek to invalidate in federal court more than $6 billion of general obligation (GO) bonds.

The action is aimed at three GO debt issues sold by the U.S. territory in 2012 and 2014 that were already in default. The board said in a statement that the debt had been issued “in clear violation of the Puerto Rico Constitution and should be declared null and void.”

The oversight board and Puerto Rico’s unsecured creditors committee jointly asked U.S. Judge Laura Taylor Swain, who oversees the island’s bankruptcy cases, to wipe out more than $6 billion of GO debt by disallowing any claims filed to date by owners of these bonds.

With roughly $120 billion in debt and pension liabilities, Puerto Rico and four of its public corporations commenced bankruptcy proceedings in U.S. court in May 2017, under Title III of the so-called PROMESA Act.

A 600-page report commissioned by the oversight board released last August pointed to potential causes of actions over Puerto Rico’s debt crisis, including potential violations of the island’s constitutional debt limit.

Monday’s announcement is the first major action taken by the fiscal panel after considering potential claims arising from the report.

Some 2014 bonds due in 2035 with an 8 percent coupon traded earlier on Monday at 53.5 cents on the dollar.

Reporting By Luis Valentin Ortiz in San Juan, additional reporting by Karen Pierog in Chicago; Editing by Simon Cameron-Moore

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