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US judge freezes interest payment on certain Puerto Rico debt

A U.S. federal judge administering Puerto Rico's bankruptcy case blocked a $16 million interest payment due June 1 and subsequent payments until bondholder disputes around who gets paid first can be resolved.

Puerto Rico's financial restructuring is the largest in U.S. municipal history, Reuters reported May 30.

Judge Laura Taylor Swain on May 30 froze the payment on Puerto Rico's COFINA bonds, granting a request by COFINA trustee Bank of New York Mellon Corp. to hold onto the interest payment until claims over who owns the money and who should get it first are resolved, Reuters and Bloomberg News reported.

A group of senior bondholders, including Ambac Assurance Corp. and Whitebox Advisors LLC, insist that they should get full share of interest payments before junior creditors get their share, with senior bondholders claiming that the sales tax agency that issued the debt has already defaulted.

Bondholders, however, agree that the commonwealth cannot claim any of the sales tax money until they are paid, Bloomberg News reported.

Creditors holding general obligation bonds, totaling $18 billion, are likewise asserting priority, citing a constitutional guarantee, Reuters reported.