| NEW YORK, April 12
NEW YORK, April 12 A holder of sales tax-backed
Puerto Rican debt, known as COFINA debt, sued Bank of New York
Mellon Corp on Wednesday, alleging the bank breached its duty as
trustee for COFINA debt to protect senior bondholders.
Whitebox Advisers sued the bank in a New York state court,
saying it should have either accelerated or frozen payouts on
COFINA debt after technical defaults by the Puerto Rican
government, which is facing an economic crisis marked by $70
billion in debt and a 45 percent poverty rate.
Whitebox alleges that several events since 2015 constitute
technical defaults, including plans by the government to
restructure its debt and potentially cut recoveries to senior
The island's current fiscal turnaround plan, approved by its
federal financial oversight board in March, is one such event,
Whitebox alleges, because it forecasts major cuts to all
creditors, including COFINA.
The complaint alleges the Bank of New York should have
sought assurances that the government was committed to
protecting COFINA debt and, in an event of default, should have
Instead, it did not seek such assurances, and continued
making disbursements to more junior COFINA holders, potentially
risking payment cuts for more senior ones, the complaint
Whitebox is seeking monetary damages from the bank of New
York. A representative of the bank could not immediately be
reached on Wednesday.
The lawsuit is the latest indication of growing concern
among creditors about potential cuts to recoveries.
Senior COFINA holders already are facing efforts to slash
their recoveries on two fronts - from the island's oversight
board, which is pushing cuts for all creditors, and from Puerto
Rico's general obligation (GO) bondholders, who have alleged in
a separate lawsuit that sales tax revenue should be redirected
to pay GO debt instead.
Wednesday's lawsuit essentially pits certain senior COFINA
holders against junior ones, accusing the Bank of New York of
failing to enforce priority rules for different classes of
(Reporting by Nick Brown; Editing by Bill Trott)