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Ambac Seeks to Freeze Use of $100M from Metropistas Deal

By on May 16, 2016

SAN JUAN — On Monday, bond insurer Ambac asked a federal court to promptly order the Puerto Rico Highways & Transportation Authority (HTA) and the Economic Development Bank (EDB) to stop the transfer of $100 million received from the 10-year extension to the PR-5 and PR-22 concession contract with Metropistas.

The bond insurer is seeking to prevent the Puerto Rico government from transferring the Metropistas-deal proceeds out of the EDB, until Ambac’s request for a receiver at the HTA is considered. According to Ambac, the authority had notified the insurer that the $100 million disbursed by Metropistas was deposited at the EDB.

Nevertheless, sources have told Caribbean Business that these funds have already been used by the local government. Last Friday, La Fortaleza announced it would use roughly $80 million of the $100 million received to pay down its outstanding debt with government suppliers, which are owed about $2 billion, officials have said.

As for the HTA, it will only receive $18.2 million to pay down what it owes to its suppliers, totaling about $155 million. The remaining $2 million would go to pay for “transaction-related costs,” Friday’s statement further reads.

The transaction represented “an effective financial alternative amid the commonwealth’s economic situation and the limited liquidity projections,” according to La Fortaleza.

The monoline’s request for a temporary restraining order is based “upon information and belief, PRHTA and/or the EDB intend to imminently transfer the above described monies to the Commonwealth in violation of PRHTA’s contractual and fiduciary duties, resulting in immediate and irreparable harm to Plaintiff,” the document reads.

Ambac sued the HTA in federal court last week, alleging the crisis at the financially battered entity has reached a breaking point that calls for the appointment of a receiver and a deep look into HTA’s “questionable behavior,” according to the complaint. On Monday, the monoline amended its complaint, initially filed last week, whereby the EDB is now included as defendants along with the HTA.

A screengrab of the HTA's website.

A screengrab of the HTA’s website.

In calling for the establishment of a receiver at the HTA, Ambac argues the authority has failed to meet its fiduciary and contractual duties to its creditors, questioning the “suspect timing” during which HTA and Metropistas, a local subsidiary of Spanish firm Abertis, recently agreed to extend the concession contract of PR-22 and PR-5 to the tune of $115 million, of which $100 million has already been disbursed.

Although it is not challenging the contract itself, Ambac had focused on the use of said funds, arguing these “would likely be siphoned off by the commonwealth government” for purposes not related to the HTA. Following La Fortaleza’s statement detailing the use of the $100 million, Ambac decided to amend its complaint and seek temporary relief to freeze the transfer of those funds.

Moreover, the plaintiffs are also seeking an expedited discovery process, aiming to have the court schedule a hearing before the end of the month.

Responding to Ambac’s legal action, HTA Executive Director Carmen Villar stated last week that the insurer expects the commonwealth to use its limited cash to pay bondholders instead of ensuring essential services to Puerto Rico residents.

“It is a somewhat premature action because bondholders have their payments guaranteed until 2017, a fact Ambac admits in its lawsuit,” Villar stated.

While the HTA is expected to meet in full roughly $240 million in debt service due July 1—most likely by siphoning its reserve accounts—Ambac believes the public corporation’s ability to make subsequent payments “is very much in question.” By insuring about $470 million of HTA’s $4.5 billion debt, Ambac would have to foot the bill if the authority is unable to do so.

“We cannot yield to untimely attacks of this nature that only intend to intimidate us,” Villar said.

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