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NEW YORK, July 17 (Reuters) - A creditor group that holds $3 billion in Puerto Rico bonds has backed a new law that allows the Commonwealth to restructure some of its debt and said it could be a source of financing for the government, according to a law firm appointed by the group.
The new alignment of creditors, which calls itself the 'Ad Hoc Group' and appears to be a collection of mainly distressed debt investors, is an indication of the legal fights that could pit traditional muni bond investors against a more aggressive breed that have started to buy Puerto Rico's debt.
"With more than $60 billion of capital under management and its strong support for the necessary and appropriate actions taken by the government of Puerto Rico, the 'Ad Hoc Group' could provide a substantial source of financing in connection with the Commonwealth's effort," the group said in a statement on Thursday.
Municipal funds run by Oppenheimer Funds and Franklin Templeton sued the Commonwealth last month, asking a federal judge in U.S. District Court in Puerto Rico to strike down a new restructuring law that was passed in late June and allows Puerto Rico to restructure debt of public corporations.
Ultimately at stake is Puerto Rico's more than $70 billion in debt. Puerto Rico says any restructuring will be limited to its public corporations. Electric power authority PREPA is widely tipped as a likely candidate to use the new law. PREPA has nearly $9 billion in debt outstanding.
Puerto Rico said on Thursday that it will vigorously defend the law and will formally respond to the law suit in the "next few days." Puerto Rico says the law is necessary to make the public corporations self sufficient instead of a drain on the government. That, they say, will help the island return to economic growth and stable budgeting in the long run.
Oppenheimer Funds' municipal bond portfolios hold $4 billion in uninsured Puerto Rico debt, leaving them open to bigger potential losses than rivals as the Caribbean island's fiscal problems escalate.
The 'Ad Hoc Group' is led by asset managers Brigade Capital Management, Fir Tree Partners, Monarch Alternative Capital, and Perry Capital, according to the group's lawyer Morrison & Foerster. The firm says the group will retain a financial adviser and add several more members shortly. (Reporting by Edward Krudy; Editing by Bernard Orr)