Federal judge rules in favor of bondholders on Puerto Rico debt

A federal judge on Friday ruled the U.S. government could be liable for parts of Puerto Rico’s $73 billion public debt.

Judge Susan Braden of the U.S. Court of Federal Claims ruled against the feds in a motion to dismiss a lawsuit by Puerto Rico’s bondholders, who seek to hold the federal government liable for the island’s debt.

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In her ruling, Braden concluded that the Fiscal Control Board (FCB) is a federal institution, rather than territorial, since it was created by Congress under the 2016 Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), and its board members are appointed at a federal level.

The FCB was created under PROMESA to ensure congressional oversight of the island’s finances and to set a pathway to recovery from the U.S. territory’s ongoing financial crisis.

In a related ruling Friday, U.S. District Judge Laura Taylor Swain dismissed a lawsuit by a different creditor, saying FCB officials are territorial, rather than federal, officials.

Braden stayed her case until Swain emits a final decision on the FCB’s constitutionality, according to a report by Caribbean Business.

The plaintiffs, in that case, included hedge funds like Glendon Capital and Oaktree Capital Management, reported local newspaper El Nuevo Dia.