NEW YORK, Aug 13 (Reuters) - A group of creditors that could be a source of financing for Puerto Rico if it restructures some of its debt has gained eight new members with an additional $60 billion in assets, including hedge fund Davidson Kempner Capital Management, the group said on Wednesday.
The creditors, which call themselves the "Ad Hoc Group," now have 27 asset managers as members with more than $300 billion in assets under management. The group says it holds more than $4.5 billion of Puerto Rican bonds.
Davidson Kempner, with more than $20 billion in assets, will join the group's steering committee, which currently comprises Brigade Capital Management, Fir Tree Partners, Monarch Alternative Capital and Perry Capital.
The group's rapidly growing financial clout and increased membership is another indication of how Puerto Rico's debt holders are dividing into different camps ahead of what could be a scrappy and acrimonious battle should the island default.
The news of the addition of creditors to the Ad Hoc Group comes at a critical time for Puerto Rico, just one day a ahead of a deadline faced by its electric power utility, Prepa, to repay $671 million owed under credit facilities with Citigroup and Scotiabank.
The U.S. commonwealth passed a law in June that allows some of its public corporations, such as Prepa, to restructure around $20 billion in debt. Investors and analysts widely see Prepa as the most likely candidate to restructure. Puerto Rico has more than $70 billion in debt outstanding.
Investors who mainly hold debt backed by the commonwealth's government, such as the Ad Hoc Group members, say that restructuring peripheral entities will shore up the government's budget and make their debt holdings more secure.
Oppenheimer Funds and Franklin Templeton Investments, which hold around $1.7 billion of Prepa's debt, sued Puerto Rico in June. They argue the law, known as the Recovery Act, conflicts with the U.S. Constitution and that the power to make bankruptcy law rests solely with the U.S. federal government.
The funds filed an amended complaint on Monday arguing that Prepa has other alternatives open to it, such as raising electricity rates, collecting more than $640 million owed to it by the commonwealth and cutting staff.
BlueMountain Capital Management, a hedge fund with more than $400 million in Puerto Rico bonds, has also challenged the law, hiring as lead counsel Theodore Olson, one of the most prominent lawyers in the United States. (Reporting by Edward Krudy; Editing by Steve Orlofsky)