Insurer FGIC Sues Puerto Rico Government
SAN JUAN – Financial Guaranty Insurance Co. (FGIC) has sued the government in federal court, challenging the constitutionality of the recently issued executive order by Gov. Alejandro García Padilla to enable the so-called “clawback” mechanism because they are preempted by the U.S. Constitution and federal law.
FGIC, which insures $1.2 billion in commonwealth debt, also sought an injunction urging the government from taking any action pursuant to the clawback, or tapping into a revenue stream destined to cover the payment of other debt, contained in Section 8 of the commonwealth’s Constitution.
The executive order calls for retaining or transferring certain taxes and revenues pledged to secure the payment of bonds from the Highway and Transportation Authority, the Convention Center District and the Infrastructure Financing Authority. Those funds were used to pay commonwealth guaranteed debt, such as general obligation bonds, as provided by the constitution.
FGIC likened the clawback to a bankruptcy law because the government is adjusting its debt.
“The United States Constitution and federal law preclude the Commonwealth from enacting a bankruptcy law that adjusts the debts of its instrumentalities and public entities and binds non-consenting creditors. The United States Congress has enacted a federal bankruptcy code, expressly providing that States have no power to enact their own laws for adjusting debts,” the document reads.
FGIC contends the executive order is unconstitutional because they violate its constitutionally protected property interests and contractual rights.
The firm says it is exposed to $164 million of the pledged funds and has suffered injuries. The order also constitutes a misappropriation and diversion of secured bondholder collateral and will deprive the firm of its property interests and due process, the complaint says.
This is the second lawsuit filed by an insurance company that challenges the clawbacks. Earlier this month, Assured Guaranty Corp. and Ambac Assurance Corp. also sued the government.