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Monolines file lawsuits within Puerto Rico bankruptcy case; contend fiscal plan is illegal

By on May 4, 2017

SAN JUAN – Assured Guaranty Corp., Assured Guaranty Municipal Corp. and National Public Finance Guarantee Corp. have filed adversary complaints within Puerto Rico’s bankruptcy process, contending that the government’s fiscal plan should not be used as a basis for any lawful plan of debt adjustments.

Assured has insured approximately $5.4 billion of Puerto Rico’s public debt while National has insured about $3.6 billion of the commonwealth and its public corporations’ indebtedness, including some $881 million in general obligation (GO) bonds.

The U.S. District Court of Puerto Rico. (Juan J. Rodríguez/CB)

The U.S. District Court of Puerto Rico. (Juan J. Rodríguez/CB)

The monolines claim that the fiscal plan approved by the Financial Oversight & Management Board is illegal because it is in violation of the Promesa law, because it does not respect lawful liens and priorities.

“The Commonwealth’s fiscal plan, dated March 13, 2017 as implemented through the newly enacted Fiscal Plan Compliance Law … totally disregards these constitutional priorities and liens and therefore constitutes a gross violation of the clear statutory mandates of Promesa. The Illegal Fiscal Plan, as implemented through the Fiscal Plan Act, turns on its head generations of federal constitutional law governing the priority and protection of secured debt by giving all general expenses and all unsecured debts payment priority over the payment of any bond debts granted constitutional first priority or secured by liens,” the document reads, adding that the plan must “ensure that assets, funds, or resources of a territorial instrumentality are not transferred” for general use, according to federal law.

Meanwhile, the Puerto Rican Judicature Association requested an injunction Wednesday, the same day the island filed for bankruptcy, seeking to stop the government and the fiscal board from reducing the pensions of judges, contending it is unconstitutional and an intromission into the affairs of another government branch.

The oversight board, on the other hand, submitted a motion in a lawsuit filed by United Public Workers (SPU by its Spanish acronym) in April, informing the court that a Title III bankruptcy process has been commenced and that there is an automatic stay. That lawsuit challenged the legality of the fiscal plan.

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