NEW YORK • U.S. fund managers and major Puerto Rico investors OppenheimerFunds and Franklin Advisors on Thursday demanded that funds be made available for payment by the island’s Public Finance Corp (PFC), warning that its failure to make a bondholder payment due Aug. 1 violated Puerto Rican law.
Puerto Rico defaulted on debt of its PFC bonds on Monday by paying only a fraction of what was due, showing the depth of the island’s economic and cashflow problems and potentially opening the door to broader defaults and litigation from bondholders.
“This missed debt service payment will impact individual holders of PFC Bonds, investors in the mutual funds of OppenheimerFunds and Franklin,” the funds said in a letter dated Aug. 5 addressed to the PFC.
OppenheimerFunds is the largest holder of Puerto Rico debt among U.S. municipal bond funds with about $4.5 billion exposure, and Franklin the second largest with about $2.3 billion, according to recent data from Morningstar.
The funds added that PFC must take all actions necessary to collect on the notes, including compelling Puerto Rico’s Government Development Bank and/or its Treasury Secretary to transfer funds to the Trustee for purposes of making the August payment.
Documents the PFC had previously filed say bondholders may not start a lawsuit unless they have filed notice of a request to cure a breach, and that the commonwealth be given reasonable time to respond.