CHICAGO — Sixteen months after finalizing its agreement to reinsure a portfolio of $13 billion in CIFG Assurance NA-backed bonds, Assured Guaranty Corp. has decided to exclude from the pact the policy covering $83.3 million of debt issued in 2006 by the Xenia Rural Water District in Iowa.

CIFG has challenged the decision, which could lead to litigation. It is especially pressing to both CIFG — which sought the reinsurance agreements after falling below investment grade — and to Xenia policyholders, as the distressed district has dipped into reserves to cover interest payments and is seeking to shed some of its debt as part of an asset sale under a fiscal recovery plan. The water district was stripped of its investment-grade rating by Standard & Poor’s last summer

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