A public investment that began with ambitious plans for a luxury resort community in Puerto Rico has spiraled into a legal dispute over nearly $100 million.
The State Insurance Fund Corporation (CFSE) filed a lawsuit last week seeking recovery of approximately $99.5 million from The Phoenix Fund LLC and PUC Holdings LLC, alleging that two loans issued in 2019 and 2021 remain unpaid. The lawsuit was filed in the Superior Court of Bayamón and claims the public corporation disbursed $80 million in principal, plus annual interest of 7% and late payment penalties.
The first loan, for $40 million, was formalized on December 27, 2019, in favor of The Phoenix Fund. The agreement stipulated an annual interest rate of 7%, with quarterly payments and an additional 1% penalty for late payment. According to the lawsuit, the fund paid interest during 2020, 2021, 2022, and the first three quarters of 2023, but defaulted beginning in the fourth quarter of that year.
As of , the CFSE alleges the debt under the first loan totals no less than $45.6 million, broken down into $40 million in principal and $5.6 million in accumulated interest, which continues to accrue.
Two years later, in May 2021, the public corporation extended another $40 million to PUC Holdings LLC, an entity linked to the fund. The contract established similar terms: a 7% annual interest rate, periodic payments, and clauses allowing for the acceleration of the entire debt in the event of default. The Phoenix Fund is also listed as a corporate guarantor in that agreement.
As of , the CFSE maintains that the debt under the second loan amounts to no less than $53.9 million, including $40 million in principal and $13.9 million in accumulated interest.
In total, the public corporation is claiming no less than $99.5 million.
The legal filing does not detail specific collateral – such as mortgages or liens on assets – that secures the repayment of the $80 million in principal. The lawsuit does describe promissory notes, interest rates, late payment penalties, and acceleration clauses, but does not outline concrete real guarantees associated with the loans.
The CFSE formally notified the defaults on , and demanded full payment before . When the money was not received, it activated the contractual clauses allowing it to declare the obligations immediately due and payable, according to the lawsuit. In addition to the principal and accumulated interest, the corporation is seeking attorney’s fees, court costs, and additional interest for alleged recklessness.
The claim comes at a time when The Phoenix Fund has been subject to regulatory scrutiny and public audits in the past year. However, the case before the court is limited to the allegation of breach of contract in the loans granted by the CFSE.
The controversy reopens the debate about the investment criteria and risk management applicable to public funds. The CFSE manages resources intended for the country’s workers’ compensation system.
The development echoes concerns seen elsewhere in the United States, as reported by the Salt Lake Tribune in , where a developer of a luxury community in Utah owes $100 million in unpaid loans, prompting lenders to take over construction. While geographically distinct, both cases highlight the risks associated with large-scale real estate ventures and the potential for significant financial repercussions when projects encounter difficulties.
Puerto Rico’s financial history is marked by debt crises and restructuring efforts. This latest legal action adds another layer of complexity to the island’s economic landscape, raising questions about due diligence in public investments and the potential for losses to the state insurance fund.
