Bond insurers challenge Puerto Rico fiscal plan

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Bond insurers Assured Guaranty, Assured Guaranty Municipal and National Public Finance Guarantee filed a challenge to Puerto Rico’s certified fiscal plan, one day after the commonwealth sought protection in a court supervised debt restructuring.

The insurers filed the complaint Thursday as part of the Title III bankruptcy process, following the Puerto Rico Oversight Board’s filing for Title III on Wednesday. Title III is a bankruptcy process for Puerto Rico’s debt found in the Puerto Rico Oversight, Management, and Economic Stability Act.

The insurers’ filing said the fiscal plan breaks PROMESA and U.S. and Puerto Rico laws and constitutions.

In the complaint filed with the U.S. District Court for Puerto Rico, the insurers quote from a PROMESA passage that says the fiscal plan must “respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of [the commonwealth] in effect prior to the date of enactment of this act.”

The insurers quote a part of Puerto Rico’s constitution that says that if there isn’t enough money for all needs, the commonwealth government must pay for interest on its debt first.

They also say that the fiscal plan breaks the Contracts, Takings and Due Process Clauses of the U.S. Constitution.

The approved fiscal plan allots about $800 million per year on debt service through fiscal year 2026, which is about 24% of what the commonwealth contractually owes.

The insurers ask the court to declare the fiscal plan invalid and to not approve any plan of debt adjustment based on it.

The complaint alleges that the fiscal plan authorizes transferring money from Puerto Rico instrumentalities to the central government, even though PROMESA bars this practice.

Assured insures $5.4 billion of Puerto Rico and public corporation debt, including $1.75 billion of general obligation bonds. National insures $3.6 billion of debt from Puerto Rico and its public corporations, of which $881 million are GO bonds.

In a letter to U.S. Senators Thomas “Thom” Tillis, R-N.C., and Thomas “Tom” Cotton, R-Ark., on April 25, Board chairman José Carríon III and the other board members addressed at least some of the concerns found in the complaint.

“This letter addresses in detail the issue you raised under PROMESA § 201(b)(1), namely how the fiscal plan ‘respects’ local priorities and the like. As you know, Congress deployed the word ‘respect,’ while consciously twice declining to use ‘comply with.’ ‘Respect’ provides flexibility and is different than the words Congress used for other fiscal plan requirements, such as to ‘ensure’ the funding of essential public services, ‘provide’ adequate funding for public pension systems, and ‘provide’ for the elimination of structural deficits.”

In Thursday’s filing Puerto Rico the insurers named as defendants the Oversight Board, the Puerto Rico Fiscal Agency and Financial Advisory Authority, Gov. Ricardo Rosselló, FAFAA executive director Gerardo Portela Franco, and Treasury Secretary Raúl Maldonado Gautier.

Assured’s law firms in the case are: Casella Alcover & Burgos and Cadwalader, Wickersham & Taft. NPFG’s law firms are: Adsuar Muniz Goyco Seda & Perezochoa; and Weil, Gotshal & Manges.

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PROMESA Puerto Rico