Arguing that the Fiscal Plan for Puerto Rico (PFPR, by its Spanish acronym) is contrary to PROMESA and that through it Puerto Rico will not return to the capital markets for a long time, municipal insurers Assured Guaranty and National Public Finance Guarantee Corp. became the first creditors to question the petition under tittle III for the Island’s government.
In a 47 page complaint plus appendices, Assured and National christened the PFPR with the word “illegal” and asked the court to throw out the Oversight board’s petition under tittle III, which among other things, extends the Island’s protection against litigations; put a stop to the illegal appropriation of funds and taxes intended for paying specific debts of Puerto Rico, that the federal entity may also not be allowed to file or seek the approval of any plan with a view to renegotiating the Island’s debt.
The arguments from the insurers were delivered by attorneys Diana Pérez-Seda and Heriberto J. Burgos Pérez, of Casellas, Alcover & Burgos and by the legal offices of Adsuar Muñiz Goyco Seda & Pérez-Ochoa.
Last Wednesday, May 3, the OB filed a petition for protection under Tittle III for Puerto Rico before the federal district court, after governor Ricardo Rosselló Nevares made a request in that sense.
The suit from Assured and National came at night that day.
According to Assured and National, the plan which seeks to serve as the basis to renegotiate the Island’s debt and modify government spending, is not only contrary to PROMESA, but also to constitutional clauses regarding seizures and due process.
Assured and National are two of the five municipal insurers guaranteeing some $12,740 million in bonds issued by Puerto Rico, according to official documents. From that universe and according to the suit, Assured and National insured some $5.4 billion and $3.6 billion, respectively, or 70% of the insured debt issued by the Island.
The Government rejected an agreement. “In light of the flagrant indifference to the PROMESA compulsory requirement of respecting the taxes and (payment) priorities, its blatant and illegal appropriation of the collateral of insured bonds and the rejection of an offer for a leniency agreement made by Assured, the company has determined to take any legal action necessary and reasonable to protect its rights,” the insurer said.
In written statements, the company indicated it will continue paying insured bondholders despite Puerto Rico having breached its contractual obligation.
According to the appeal, instead of serving the public interest by developing a fiscal plan that respects the payment priority established in the Constitution of Puerto Rico and proposing more reasonable cutback levels, the OB and the Government opted to create and approve a plan that will cause serious impairment to the creditors and will onlyserve to “shut” even further access by the Island to the capital markets.
Based on the PFPR as certified, the Government’s creditors, with the endorsement from the OB, submitted an offer to the main creditors of the Island which practically sought to cut the debt principal by half, as well as a 10 year moratorium in debt payments.
According to the PFPR, during this 10 year period, Puerto Rico can only pay 24% in debt service per year.
For Assured and National, in turn, the plan’s assumptions are simply untenable.
By way of example, Assured and National reiterate in the suit that the fiscal plan contains an annual item of some $600 million for unbudgeted expenditures, which would be contrary to the requirement in PROMESA to put an end to the structural deficit faced by the Island.
The plaintiffs also seek to derail the plan –which would mean placing Puerto Rico in limbo- because it does not provide estimates based on applicable law or legislation which might be proposed or required, because these measures were not included in the document.
The appeal by Assured and National arrived in the Puerto Rico federal district court, as it waits for the Chief Justice of the Supreme Court to appoints the judge who will hear the controversy.
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