Multiple hedge funds have filed a lawsuit against Puerto Rico Gov. Alejandro García Padilla for allegedly violating a new law meant to alleviate Puerto Rico's debt crisis.
The lawsuit claims the the Puerto Rico government violated the new Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA, which Pres. Barack Obama signed into law shortly before the July 1 payment deadline.
Bondholders allege that Puerto Rico violated PROMESA by passing a Fiscal Year 2017 budget, which García Padilla announced May 23, that did not set aside money for full payment of general obligation debt while diverting money toward the island's public pension systems, which are underfunded.
The hedge funds suing García Padilla include Aurelius Capital Management, Autonomy, Covalent Capital Partners, Fundamental Credit Opportunities, Monarch and Stone Lion, among others.
García Padilla announced July 1 that the Puerto Rico government did not have enough money to cover the July 1 payment of $779 million.
García Padilla's chief of staff Grace Santana told the Associated Press that she expects more lawsuits to roll in, and said that creditors who sue the government will not receive special treatment.
"This administration continues to face the gravest fiscal crisis in the history of Puerto Rico. In order to continue providing basic and essential services to our citizens, the government has enacted a series of emergency measures," Santana said.