José Carrión, president of the Oversight Board. (GFR Media) (horizontal-x3)
José Carrión, president of the Oversight Board. (GFR Media)

Claiming that Puerto Rico´s default cost them approximately $ 778 million directly, Assured Guaranty and Financial Guaranty Insurance Company (FGIC) went back to court to raise before Judge Laura Taylor Swain that the debt renegotiation process the Government and the Oversight Board promote, lies on a fiscal plan that does not comply with PROMESA.

This week, after withdrawing a similar lawsuit last year due to Hurricane Maria, Assured sent to Judge Taylor Swain, presiding the Title III cases, a new adversary complaint in which they ask to declare new certified fiscal plan unconstitutional, while stressing that the federal entity itself concluded that the budget suggested by Governor Ricardo Rosselló Nevares is contrary to the certified plan.

Likewise, Assured and FGIC affirm that the Board does not fulfill its duties and that an adjustment plan in accordance with the newly certified document could not be confirmed in light of the current state of law.

"Plaintiffs seek a judgment declaring that the Revised Fiscal Plan is unlawful and unconstitutional, and declaring that FOMB cannot use the Revised Fiscal Plan as the basis for proposing a plan of adjustment in the pending Title III case for the

Commonwealth of Puerto Rico (the “Commonwealth”)," reads the complaint filed by Assured and FGIC.

Still plenty of lawsuits

This is the first adversary complaint that Puerto Rico faces since the Board certified, in April, a revised fiscal plan as a result of Hurricane Maria. This might be complaint number 47 among those filed against the government since Title III protections were invoked a year ago.

Even with PROMESA´s stay on litigation and according to the list of lawsuits against the federal entity that are not related to Title III, this complaint  would join the more than 75 disputes that the Board and therefore, Puerto Rico, are facing in court.

The complaint filed by Assured in the federal court occurs while the Government and the Board opted to avoid litigation, by agreeing to allocate more funds to the Office of the Governor and not to touch the Legislature budget in exchange for revoking Law 80, 1976, that provides protection to workers in case of unjust dismissal.

Full of violations

"For months, we have been asking that the Commonwealth and Oversight Board open constructive negotiations with creditors and stakeholders, but they have instead produced an unlawful fiscal plan, without creditor input, indicating they would rather litigate than engage in meaningful negotiations to develop a realistic solution,” said Assured CEO Dominic Frederico in written statements.

According to the insurer, which to the date of the complaint had paid about $ 616 million in claims for 

defaulted bonds, the “Revised Fiscal Plan allocates $1.5 billion for litigation and related expenses without providing for debt service”. Apart from insuring Puerto Rico's debt, the insurer owns Island's bonds, particularly General Obligation Bonds and those of the Puerto Rico Sales Tax Financing Corporation (Cofina).

On the other hand, FGIC would have paid about $ 162 million in claims.

According to Assured, the revised fiscal plan is plagued with violations, from allowing the Government to consolidate and use assets that would belong to other debt issuers -which would be prevented by PROMESA - until defining what essential services are, an exercise that is not required, according to Natalie Jaresko, Board´s Executive Director.

The government objects to debt investigation

While Assured and FGIC revive questionings about the fiscal plan, these insurers, as well as other groups of bondholders, the Fiscal Agency and Financial Advisory Authority (FAFAA), the Unsecured Creditors Committee (UCC) and the Official Commitee of Retired Employees (COR) who participate in Title III cases, still have a legal battle to access the documents, studies and models that led to the certified fiscal plan in March 2017.

Essentially, creditors claimed for a year that the Government and the Board have done everything possible to prevent bondholders from knowing how the federal entity concluded that Puerto Rico does not have funds to pay them. The Board and the Government argue, in general terms, that bondholders only seek information to be used against Puerto Rico in litigations.

Now, the controversy regarding this information also includes the renewed request that the UCC has made to investigate the reasons that produced the Government´s financial collapse. In November 2017, Judge Swain denied the UCC's request, noting that the Board was already conducting an investigation on the issue, that it was appropriate to join forces and that the Board should share its investigation with the creditors' committees.

According to UCC and COR, it is urgent that both organizations conduct such an investigation, because, to date, the work carried out by the Board is late and insufficient. As evidence, the committees state that the only party that has not agreed to provide information and documents to the Board´s investigator, has been precisely the Government.

In a motion filed this Wednesday, FAFAA denied these accusations and insisted that the creditors´request for investigation continues untimely. The agency explained that it has not provided information to Board´s investigators because it still requires that different government agencies allow this through confidentiality agreements.

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