Bond Insurer Sues Puerto Rico to Stop Debt Moratorium

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National Public Finance Guarantee sued Puerto Rico Wednesday to overturn Puerto Rico's debt moratorium law.

The bond insurer cited the Supreme Court's decision on Monday declaring Puerto Rico's Public Corporation Debt Enforcement and Recovery Act as being illegal and against the United States Constitution. It said that Puerto Rico's Emergency Moratorium and Financial Rehabilitation Act was similar and also illegal.

The insurer also cited several parts of the U.S. Bill of Rights and U.S. law to say the court should overturn the act.

The Moratorium Act has provisions that bar suits against its debt moratoriums. NPFG is challenging these provisions.

"With this action, National is seeking to protect the rights to priority of payments established under the Puerto Rico constitution on the general obligation bonds that it insures, and the liens on properties that secure other National-insured bonds, which the commonwealth has already invaded under claimed authority of the Moratorium Act," said National chief executive officer Bill Fallon.

"While National is supportive of the efforts by the U.S. Congress to pass legislation to address Puerto Rico's financial difficulties, the current draft of the PROMESA legislation approved by the House of Representatives does not foreclose continued reliance on the unconstitutional Moratorium Act," Fallon continued.

In NPFG's complaint filed in the United States District Court for the District of Puerto Rico, the insurer sued Puerto Rico Gov. Alejandro García Padilla, Secretary of the Treasury Juan Zaragoza G-mez, and Office of Management and Budget director Luis Cruz Batista.

NPFG insures about $3.84 billion of Puerto Rico debt, according to its filing.

García Padilla signed the Moratorium Act into law on April 6. Since then he has applied it to debt from the Government Development Bank for Puerto Rico, the Puerto Rico Highways and Transportation Authority, and the Puerto Rico Infrastructure Finance Authority.

In its suit, National notes that it insures over $715 million (net of reinsurance) of PRHTA bonds.

Adsuar Muñiz Goyco Seda & Pérez-Ochoa, P.S.C. and Weil, Gotshal & Manges LLP are the law firms representing National in its suit against Puerto Rico.

Representatives of Puerto Rico didn't respond to a request for comment.

On May 20 hedge funds holding more than $750 million of the debt of the GDB revived a lawsuit, accusing the government of "changing the rules of the game" by amending its debt payment moratorium law. They revived the suit by filing an amended complaint to a suit they had filed on April 4 in the U.S. District Court in Puerto Rico. They are also seeking to overturn the Moratorium Act and Law 40, with which Puerto Rico amended the Moratorium Act on May 5.

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