Assured Guaranty Ltd. Filed an adversary complaint challenging the Commonwealth of Puerto Rico’s “illegal diversion” of special revenue bond collateral that secures the payment of Puerto Rico Highways and Transportation Authority bonds.
Two Assured Guaranty bond insurance subsidiaries, Assured Guaranty Municipal Corp. and Assured Guaranty Corp., filed an adversary complaint at the U.S. District Court in Puerto Rico asking for the following:
- A judgment declaring that the application of pledged special revenues to the payment of the PRHTA Bonds is not subject to the Title III automatic stay and that the Commonwealth has violated the special revenue protections provided to the PRHTA Bonds under the Bankruptcy Code;
- An injunction enjoining the Commonwealth from taking or causing to be taken any action that would further violate the special revenue protections provided to the PRHTA Bonds under the Bankruptcy Code;
- And an injunction ordering the Commonwealth to remit the pledged special revenues securing the PRHTA Bonds in accordance with the terms of the special revenue provisions set forth in the Bankruptcy Code.
“With this action, Assured Guaranty seeks to halt the latest in a series of unconstitutional and unlawful acts undertaken by the Commonwealth [and endorsed by the Financial Oversight and Management Board for Puerto Rico] to manage its financial distress,” the monoline insurer said in a statement.
“Since November 2015, the Commonwealth has engaged in an ongoing scheme of constitutional and statutory violations, which repudiate the rule of law by diverting special revenue bond collateral from the payment of PRHTA Bonds to other, unauthorized uses,” the company further noted.
“This illegal diversion of special revenue bond collateral not only impairs Assured Guaranty’s contractual rights and takes its property interests, but also violates the special revenue protections of the Bankruptcy Code, which Congress incorporated into Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA),” it added.
These protections guarantee that holders of special revenue bonds, or their insurers, receive the benefit of their bargain by protecting the lien on post-petition special revenues and exempting the application of such revenues from the automatic stay.
“Finally, this illegal diversion of special revenue bond collateral should prevent the Commonwealth from accomplishing a primary objective of PROMESA, which is the ability to return to the capital markets,” Assured Guaranty said in a statement.
Irrespective of the Commonwealth’s and Oversight Board’s “flagrant repudiation of constitutional and statutory protections provided to the PRHTA Bonds and their unlawful expropriation of special revenue bond collateral, payments to holders of PRHTA Bonds insured by Assured Guaranty will continue to be paid without interruption for the life of the bonds,” the company said.
“Assured Guaranty unconditionally and irrevocably guarantees full and timely payment of scheduled debt service, in accordance with the terms of Assured Guaranty’s insurance policies, and upon payment, takes over the rights of the insured bondholders,” the insurer stated.
Assured Guaranty is determined to take reasonable and necessary actions to protect its rights as insurer of PRHTA Bonds, it added.