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Bond Insurer Demands Receivership for Highways Authority

By on May 11, 2016

SAN JUAN — Bond insurer Ambac sued the Puerto Rico Highways & Transportation Authority (HTA) in federal court on Tuesday. The suit alleges that 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 document.

highwayIn calling for the establishment of a receiver, Ambac argues that the HTA has failed to meet its fiduciary and contractual duties to its creditors. For instance, the insurer is 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 been already disbursed.

Although it is not challenging the contract itself, Ambac is focused on the use of said funds, arguing these “would likely be siphoned off by the commonwealth government” for purposes not related to HTA.

As previously reported by Caribbean Business, La Fortaleza has yet to announce the use of the aforementioned revenues, while dodging a request made by the Government Development Bank (GDB) before partially defaulting on its May 2 debt payment. According to the island’s public-private partnership law, the GDB and the Office of Management & Budget issue a recommendation to the executive branch over its use.

On April 29, Ambac asked HTA whether the $100 million would be used for the benefit of the authority, to which the counsel for HTA replied that the funds were currently held at the Economic Development Bank in the authority’s name.

Ambac also argues that HTA’s latest actions, while failing to disclose financial information, “underscore the need for immediate relief from this Court in the form of (1) expedited discovery so that Plaintiff can ascertain the full extent of HTA’s malfeasance; and (2) the appointment of a provisional receiver over HTA to avoid further irreparable harm to HTA, its bondholders, and Plaintiff.”

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.

The bond insurance company is represented by Puerto Rico law firm Ferraiuoli LLC, and New York-based Milbank, Tweed, Hadley & McCloy LLP.

Earlier this year, Ambac and Assured Guaranty, another bond insurance company with exposure to Puerto Rico debt, filed suit against the commonwealth for redirecting pledged revenues, known as “clawbacks,” to pay for public debt, a move the monolines deem as illegal and invalid under the U.S. Constitution. Gov. Alejandro García Padilla’s clawback order covers one of HTA’s revenue sources for the repayment of its debt.

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