Ambac Files Complaint Against Fiscal Board
Alleges Promesa Violates Constitution’s Uniform Bankruptcy Law Requirement
SAN JUAN – New York-based Ambac Financial Group Inc., the holding company whose subsidiaries include bond insurer Ambac Assurance Corp., announced Tuesday that the latter filed a complaint in the U.S. District Court for the District of Puerto Rico against the Financial Oversight & Management Board for Puerto Rico.
The complaint seeks a declaration that Titles I, II, and III of the federal statute enacted in 2016 to enable Puerto Rico to restructure its debts, the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa), are unconstitutional and unenforceable on the ground that they violate the uniformity requirement of the U.S. Constitution’s Bankruptcy Clause.
Under this clause, the U.S. Congress may legislate on the subject of bankruptcies, but all such laws must be uniform.
“This is designed to prevent the enactment of one-off bankruptcy rules customized to specific debtors. By virtue of PROMESA, Congress has singled out the Commonwealth of Puerto Rico and its instrumentalities for special treatment as a debtor, in stark contrast to the requirements of the U.S. Constitution,” the insurer said in a statement.
Elizabeth Prelogar, Partner at Cooley LLP representing Ambac in this complaint, said, “Armed with PROMESA provisions that apply only to Puerto Rico and to no other territory or municipal debtor, the Oversight Board has steered Puerto Rico’s bankruptcy far afield from any prior restructuring proceeding. No creditors of any other territory, municipality, or governmental debtor have been subject to the sort of discriminatory treatment being faced by creditors of the Commonwealth—and the Constitution requires uniform bankruptcy laws to guard against this result.”
Ambac pointed out that the board’s powers under Promesa are also disputed by the government of Puerto Rico.
“But they illustrate how PROMESA’s unique provisions have already skewed the bankruptcy process to the detriment of Commonwealth creditors and the people of Puerto Rico, requiring creditors to defend against unprecedented incursions on their property and other legal rights. Meanwhile the Oversight Board continues to spend hundreds of millions of Puerto Rico taxpayer dollars on legal and other advisors, despite calling for austerity measures and cuts to pensioner payments,” the news release reads.
“Decisions under PROMESA have had broad-sweeping negative impacts on the U.S. municipal market, upending longstanding investor expectations. No matter the ultimate outcome of the various disputes about the Board’s authority under PROMESA, these disputes illustrate how PROMESA, as applied by the Oversight Board, departs from ordinary debt-adjustment proceedings, with consequences that become ever more injurious as the cases proceed. Under existing bankruptcy laws, no other territory, governmental entity, or Chapter 9 debtor could threaten creditors with putative powers to dictate priorities in contravention of state or territorial law, to pick and choose which creditors to pay with impunity while obtaining a discharge, or to impose allocations of assets and available funding for debt service without meaningful judicial scrutiny,” the company assured.