Assured Guaranty Files Adversary Complaint Challenging the Legality of the Puerto Rico’s ‘Fiscal Plan’

Assured Guaranty Ltd. is a publicly traded Bermuda-based holding company. Its operating subsidiaries provide credit enhancement products to the U.S. and international public finance, infrastructure and structured finance markets.

It has recently released the following comments regarding the adversary complaint which it filed in early May 2017 challenging the legality of the Puerto Rico Commonwealth’s Fiscal Plan as certified by The Financial Oversight and Management Board for Puerto Rico (Oversight Board):

Assured Guaranty Municipal Corp. and Assured Guaranty Corp., two bond insurance subsidiaries of Assured Guaranty Ltd. (together with their parent, Assured Guaranty or the Company), filed an adversary complaint in Federal District Court in Puerto Rico yesterday seeking (i) a judgment declaring that the Fiscal Plan violates various sections of PROMESA and the Contracts, Takings and Due Process Clauses of the U.S. Constitution; (ii) an injunction enjoining the Commonwealth and Oversight Board from presenting or proceeding with confirmation of any plan of adjustment based on the Fiscal Plan, or taking any other action pursuant to the Fiscal Plan; and (iii) a stay of the confirmation of any plan of adjustment based on the Fiscal Plan pending development of a fiscal plan that complies with PROMESA and the U.S. Constitution.

With this action, Assured Guaranty challenges the legality of the Fiscal Plan and its gross violation of the clear statutory mandates of PROMESA, including its failure to respect liens and priorities, its misappropriation of pledged special revenues and its failure to provide for fiscal responsibility or access to capital markets. The complaint contends that these gross violations of PROMESA turn on their head generations of federal constitutional law governing the priority and protection of secured debt by giving all general governmental expenses payment priority over the payment of bond debt granted constitutional first priority or secured by liens. Moreover, the complaint alleges that the Fiscal Plan, by impairing creditors’ contractual rights and stealing their property, ensures that Puerto Rico will not regain access to the capital markets for the foreseeable future. Finally, the complaint asserts that the Fiscal Plan, unless totally recast, cannot possibly be permitted to serve as the basis for any lawful plan of adjustment that complies with the constitutions and laws of the United States and Puerto Rico.

In light of the Commonwealth’s and Oversight Board’s blatant disregard of PROMESA’s mandatory requirement to respect lawful liens and priorities, their brazen and unlawful misappropriation of secured bondholder collateral, and their rejection of Assured Guaranty’s offer of forbearance, the Company is determined to take reasonable and necessary actions to protect its rights as insurer of bonds of the Commonwealth and certain of its instrumentalities.

As always, investors owning Puerto Rico-related bonds insured by Assured Guaranty will continue to receive uninterrupted full and timely payment of scheduled debt service in accordance with the terms of Assured Guaranty’s insurance policies.

With $12 billion in claims-paying resources across its group of companies and approximately $400 million generated each year from its $11 billion investment portfolio alone, Assured Guaranty’s liquidity and capital position are very strong“.

A story worth following, I anticipate.

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