May 4 A pair of bond insurers with about $9
billion at stake in Puerto Rico's debt crisis on Thursday sued
the U.S. territory and its financial oversight board, objecting
to a fiscal turnaround plan approved by the board in March.
The suit filed by units of Assured Guaranty Ltd and
MBIA Inc came a day after Puerto Rico announced a
historic restructuring of its public debt, touching off what may
be the biggest bankruptcy ever in the $3.8 trillion U.S.
municipal bond market.
It followed similar actions by another bond insurer, Ambac
Financial Group Inc, and other major creditors earlier
in the week.
At immediate issue in the lawsuit is the legality of the
turnaround plan adopted by the oversight board installed under
last year's U.S. congressional rescue law, known as
PROMESA. The plan forecasts the island having only
$800 million a year to service debt, auguring major haircuts for
The plan requires "illegal (fund) transfers by allowing the
Commonwealth to simply misappropriate for its own general use
special revenues that constitute property of its public
corporations and their bondholders," said the complaint filed in
federal court in Puerto Rico.
Assured could be on the hook for as much as $5.4 billion in
bondholder losses on defaulted debt, while MBIA's National
Public Finance Guarantee Corp has about $3.6 billion of
On Wednesday, Puerto Rico's oversight board filed a petition
to protect the commonwealth from its creditors in U.S. District
Court in Puerto Rico. The filing was made under Title III of
PROMESA, which allows for a court debt restructuring process
akin to U.S. bankruptcy protection.
Puerto Rico is barred from a traditional municipal
bankruptcy under Chapter 9 of the U.S. code.
It was not immediately clear just how much of Puerto Rico's
roughly $70 billion of debt is included in the bankruptcy
(Writing by Dan Burns; Editing by Dan Grebler)