Puerto Rico’s plan to slash its sales-tax-backed debt relies on a tax-free exchange of old bonds for new ones. But the partial U.S. government shutdown has thrown a wrinkle in the proceedings, bondholders said in court Thursday: the Internal Revenue Service hasn’t been able to vet it in advance because of the closure.
That led Peter Hein, a bondholder fighting the debt-adjustment plan, to ask U.S. District Court Judge Laura Taylor Swain to reject it, saying creditors need to know how the IRS will treat the exchange for tax purposes before it takes place.
Hein also claimed the proposal, which is designed to lower the islands’ crippling government debt, is unfair because it pays Puerto Rico residents more than mainland creditors.
Puerto Rico is trying to slash debt through a series of bankruptcy cases filed since 2017. The sales-tax bond restructuring being considered at Thursday’s hearing would be the biggest such deal so far, affecting more than $17 billion of debt.
The case is Puerto Rico Sales Tax Financing Corporation, 17-3284, U.S. Bankruptcy Court, District of Puerto Rico (San Juan).
