WRAPUP 3-Puerto Rico worries deepen on lawsuits, bond selloff

lunes 30 de junio de 2014 18:27 GYT

(Adds PREPA bond payment due Tuesday, analysts' comments, recent economic activity)

By Tim McLaughlin and Lisa Lambert

June 30 (Reuters) - Puerto Rico's financial troubles worsened on Monday after mutual funds holding about $1.7 billion of its debt sued the commonwealth, while investors continued to dump debt sold by the island's public corporations.

The flashpoint for the lawsuit brought by two large institutional holders is a law passed last week allowing the U.S. territory's public corporations - primarily its electric power authority known as PREPA - to restructure their debt. The law sparked a sharp selloff in these agencies' bonds that extended on Monday.

Under its constitution, Puerto Rico, one of the largest issuers of municipal bonds, does not have the power to enact a bankruptcy law to adjust its debt, but island authorities say the entities in question are not subject to that rule.

The mutual funds disagree and their reaction raised the possibility of a protracted legal battle over Puerto Rico's obligations to debtholders. Their complaint contends Puerto Rico passed an act modeled after title 11 of the U.S. bankruptcy code used by corporations to reorganize.

The newly enacted law specifically excludes the commonwealth and the Government Development Bank. Still, it has stoked concerns about the potential restructuring of commonwealth debt.

On Monday, Puerto Rico's financial leadership said the law "in no way indicates any shift in Puerto Rico's historical and constitutionally supported commitment to honoring its financial obligations."

But Duane McAllister, a fund manager at BMO Global Asset Management in Milwaukee, said investor perception was key.   Continuación...