Bond insurer Assured Guaranty sued Puerto Rico and its federally-appointed oversight board on Wednesday, saying their plan to resuscitate the storm-ravaged, bankrupt U.S. territory violates the U.S. Constitution by stripping creditors of property rights.
Assured, which insures $5 billion of bonds issued by Puerto Rico and its public agencies, wants a federal court in Puerto Rico to declare invalid a so-called fiscal turnaround plan that sets future economic projections for Puerto Rico.
The projections are meant to form the basis for debt restructuring talks between Puerto Rico and holders of $71.5 billion in debt the island cannot pay. Assured expressed frustration over the plan last week, telling the board in a letter the projections had been reached without creditor input.
In a statement filed concurrently with the complaint, Assured said “Puerto Rico’s long-term economic sustainability depends on future investment and access to capital markets, and investors will not be willing to make those investments if previous agreements are not honored.”
The fiscal plan projects about $6.05 billion of debt service capacity over the next six years, indicating big haircuts for creditor repayments. The plan is supported by the board and by Governor Ricardo Rossello, who had opposed it until this week, when he announced an accord with the board over how the plan would treat workers.
Assured’s lawsuit is an updated version of a similar one the company had withdrawn after Hurricane Maria slammed Puerto Rico in September. The storm, Puerto Rico’s worst natural disaster in 90 years, forced the oversight board to revise the island’s then-fiscal plan.
Assured alleges that the new plan does not do any better a job than the old one of respecting creditors’ liens, which it says the board is required to do under the 2016 federal law that created it, called PROMESA.
The plan does not define which government services are and are not “essential,” also in breach of PROMESA, and violates the U.S. Constitution’s Takings Clause, which bars the government from seizing private property for public use, according to the lawsuit.
Spokesmen for the oversight board and Rossello could not be reached for immediate comment on Assured’s latest legal action.
(Reporting by Nick Brown; Editing by Daniel Bases and Tom Brown)
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