| NEW YORK, June 1
NEW YORK, June 1 Senior creditors of Puerto
Rican debt backed by the island's sales tax revenues are seeking
to depose government officials over what they see as conflicts
of interest in how the U.S. territory manages its bond payments.
As Puerto Rico sorts its way through the biggest bankruptcy
in U.S. municipal history with $70 billion in bond debt and
another $49 billion in pension liabilities, several creditor
groups are litigating feverishly over who gets paid
This group, holding some $2.5 billion in senior debt issued
by Puerto Rico's sales tax authority, COFINA, asked a judge on
Thursday to let them depose officials in charge of Puerto Rico's
fiscal agency, known by its acronym AAFAF.
A source familiar with the COFINA creditors' thinking said
the group wants to depose Puerto Rico Governor Ricardo Rossello,
one of his key advisers Elias Sanchez, and AAFAF's director,
A spokesman for the COFINA bondholder group declined to
comment. Sanchez, Portela and a spokeswoman for Rossello could
not be reached for comment.
The decision on the scope of depositions will ultimately
fall to Judge Laura Taylor Swain, who oversees Puerto Rico's
Thursday's filing was part of a legal dispute between senior
and junior COFINA creditors over a $16 million interest payment
due on June 1.
Court papers filed by the senior creditor group, which
includes Cyrus Capital Partners and Tilden Park Capital
Management, said AAFAF "suffers from irreconcilable conflicts of
interest" because it acts on behalf of both COFINA and Puerto
Rico's central government - separate debt issuers whose
creditors are fighting over the same money.
COFINA'S $17 billion in bonds are backed by sales tax
revenue. But holders of the central government's $18 billion in
general obligation (GO) bonds, including Aurelius Capital
Management and Monarch Alternative Capital, argue their
constitutionally guaranteed debt puts them first in line for
The senior COFINA holders claim AAFAF has made overtures
suggesting it supports raiding COFINA coffers to benefit GO
holders. Creditors should be allowed to depose officials to
determine "what ownership interest" AAFAF has in the disputed
funds, they argued.
Recoveries for COFINA creditors will hinge on their ability
to establish COFINA as separate from the government and thus
inaccessible to government creditors. Showing AAFAF is acting in
the government's best interest, but not COFINA's, could support
(Reporting by Nick Brown; Editing by Daniel Bases and Diane