A second lawsuit over Puerto Rico’s debt default will be joined with a similar suit in order to save time and money and avoid inconsistent rulings, a U.S. federal judge said on Thursday.
Financial Guaranty Insurance Co., or FGIC, sued Puerto Rico on Tuesday for diverting $164 million in revenue streams meant to pay the island’s debt.
The lawsuit mirrored one brought earlier this month by two other bond insurers, Assured Guaranty and Ambac Financial, which argues that the so-called clawbacks violate the U.S. Constitution.
The cases, both filed in U.S. federal court in Puerto Rico, are the first against Puerto Rico since Governor Alejandro Garcia Padilla called the U.S. territory’s $70 billion debt load “unpayable” last June.
The governor has said the only way to afford to pay debt backed by Puerto Rico’s constitution was to redirect or “claw back” revenues earmarked for debt at other agencies.
“Both cases assert most of the same claims,” including the same defendants, U.S. District Judge Gustavo Gelpi said in a court filing.
By joining the two lawsuits, he said the defendants, who include Garcia Padilla and other top Puerto Rican officials, can save money by not going to trial before two different judges.
Both cases will now go before U.S. District Judge Jose Fuste in Puerto Rico.
The lawsuits could mark a long, expensive court fight over Puerto Rico’s efforts to restructure its debt. The island lacks access to U.S. bankruptcy protections, and creditors have resisted voluntary concessions, making for a messy and unpredictable path to restructuring.
A 45 percent poverty rate and shrinking tax base have helped push Puerto Rico into an economic quagmire. The lawsuits represent the first chance for a judge to assess the island’s long-standing claims that it faces a humanitarian crisis and needs help from creditors.
But the litigation could prove largely symbolic, as the parties are expected to put most of their resources into consensual restructuring talks in the coming months.
FGIC insures about $1.2 billion of debt at the clawed-back agencies, while Ambac insures about $1.1 billion and Assured nearly $1.5 billion, according to the lawsuits.
(Reporting by Tracy Rucinski; Editing by Peter Cooney)
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