May 4 (Reuters) - 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 bondholders.
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 exposure.
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 filing. (Writing by Dan Burns; Editing by Dan Grebler)