By Nick Brown
NEW YORK (Reuters) – Puerto Rico has scheduled mediation for next month to resolve bitter litigation between rival creditors of the struggling U.S. territory.
Puerto Rico’s financial oversight board, as well as its fiscal agent, which is known by its Spanish acronym AAFAF, told creditors in a letter on Thursday the mediation was set for April 10-13 in New York.
The letter, seen by Reuters, said the focus would be to resolve strife between holders of $17 billion of general obligation debt and $18 billion in so-called COFINA debt backed by sales tax revenue.
COFINA bondholders say that around $3.5 billion of the GO debt is invalid because it exceeded constitutional limits.
Former bankruptcy Judge Allan Gropper will serve as mediator, the letter said. Gropper presided over a number of large, messy Chapter 11 cases as a federal judge in New York, including Eastman Kodak Co’s $6.75 billion bankruptcy in 2012.
The next few weeks will be critical for Puerto Rico, whose $70 billion debt load is pushing its economy toward collapse.
May 1 marks the expiration of a freeze on creditor lawsuits over debt defaults under the 2016 federal Puerto Rico rescue law known as PROMESA. At that time, if a consensual debt restructuring has not been reached, creditors can sue the territory, or the oversight board can push it into a court-sanctioned restructuring process akin to U.S. bankruptcy.
The GO-COFINA battle has become a flashpoint in the dispute, with both sides claiming ironclad legal rights to payment.
But not all creditors want to mediate. In a letter to the board on Thursday night, holders of $13 billion in debt across several credits – including some holders of both GO and COFINA debt – said they would prefer to negotiate with the board and AAFAF.
“The Oversight Board and Puerto Rico should commence negotiations with its substantial creditors next week,” the creditors said. “Spending time on mediators or mediation procedures will only result in material delay to any negotiation.”
The oversight board and AAFAF, in their letter, said creditors who object to mediation did not have to participate but could submit offers directly to AAFAF and the board, which would share them with the mediator.
(Reporting by Nick Brown; Editing by Tom Brown)