The group, which counted more than three dozen firms as members, had begun losing support as some broke off to form more nimble coalitions, said the people, who asked not to be named because the information isn’t public. The defections started after Governor Alejandro Garcia Padilla said in June that the government’s debts were “not payable” and it became clear officials would seek to restructure rather than borrow.

The creditors had joined to structure and fund a debt package that they thought would help the cash-strapped U.S. territory bridge its budget gap before longer-term reform measures alleviated the deficit. The hedge funds, sometimes referred to as the "ad hoc group," had been negotiating since at least February with Puerto Rico officials over the sale of $2.9 billion of new petroleum-tax bonds, people with knowledge of the matter said at the time.

Stephanie Dodge, a spokeswoman for the group at Hamilton Place Strategies, declined to comment. Jocelyn de Carvalho, a spokeswoman for Morrison & Foerster LLP, the law firm advising the group, didn’t immediately provide a comment. Soren Reynertson, managing general partner of GLC Advisors & Co., the financial advisory firm representing the investors, didn’t immediately return phone and e-mail messages seeking comment.

Distressed-debt investing heavyweights Brigade Capital Management, Fir Tree Partners, Monarch Alternative Capital and Perry Capital formed the group with $3 billion in Puerto Rico debt holdings in July 2014, according to a statement at the time. Its main investor committee was enlarged to eventually include at least six firms: Brigade, Fir Tree, and Monarch, plus Centerbridge Capital Partners, Davidson Kempner Capital Management and Stone Lion Capital Partners.

The investors owned securities considered better protected from a debt restructuring than those of the island’s public corporations. Group members mostly held general obligation bonds plus notes issued by the Government Development Bank, Public Buildings Authority and Puerto Rico Sales Tax Financing Corp., whose obligations are known as Confina bonds after the Spanish acronym.

The group released the first broad public challenge to the island’s plan to alleviate its fiscal problems and restructure its debt. Former International Monetary Fund economists it hired led by Claudio Loser said in July the island’s central government can pay what it owes, in defiance to a report released by a team of economists Puerto Rico hired.

The island’s 8 percent general obligation bond maturing July 2035 rose about 0.2 cent Friday to an average of 75.2 cents on the dollar, according to data compiled by Bloomberg. The average yield was 11.1 percent.