Ambac questions Puerto Rico board assertion that pension liabilities rose $5 billion

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Bond insurer seeks full discovery into obligations

SAN JUAN — A municipal bond insurer wants to know why between the May 9 release of Puerto Rico’s new fiscal plan and the planned support agreement for commonwealth debt announced June 16, pension obligations grew by about $5 billion, to $55 billion.

For that reason, Ambac Assurance Corp., which holds or insures more than $1 billion in bonds from Puerto Rico and its instrumentalities, wants the U.S. District Court to allow full discovery into pension liabilities.

In a motion submitted in court Tuesday, Ambac said the government has not been fully forthcoming in providing adequate analysis. While it has obtained some documents from the government, it said it is no closer to understanding the “massive figure in pension liabilities.”

In each of the fiscal plans certified by the island’s Financial Oversight and Management Board during these Title III cases under the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), including the most recent one certified May 9, pension liabilities have totaled $50 billion, Ambac said.

“At no time, however, has either the Commonwealth or the Oversight Board investigated or substantiated that massive figure; rather, virtually all attention to the pension liabilities has focused on the amount of any actual or proposed cuts to the overall number, rather than to the overall claimed liability amount. Transparency into the size and scope of the Commonwealth’s true pension liabilities is necessary if the Commonwealth is to pursue a restructuring of its liabilities and successful exit from bankruptcy,” Ambac said.

The insurer said it engaged in a discovery process with Puerto Rico’s Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym), which provided reports produced by the actuarial firm Milliman Inc. However, the firm’s reports “expressly disclaimed any assessment over the integrity of the data provided by the Commonwealth,” Ambac said.

“Despite slowly rolling productions from AAFAF, with very limited exception, Ambac is no closer to understanding the $50 billion asserted pension liability today than it was over a year ago,” the insurer stressed.

While Ambac said it understands the importance of pensions and does not question their legitimacy, they should not be insulated from scrutiny.

“Given the gargantuan scale of the asserted pension liabilities, even relatively minor flaws (on a percentage basis) in the actuarial analysis have the potential, when corrected, to free up billions of dollars for other purposes,” the firm said.

The fiscal board has reached agreements with different groups to restructure pensions. On June 3, the Puerto Rico Teachers Association announced support for an agreement, which was ultimately rejected by union members, with the board regarding the treatment of pensions in a future commonwealth plan of adjustment.

On June 10, the United Public Servants Union made a similar announcement for an agreement with the board that includes a $1.36 billion investment to ensure pension funding for workers. On June 12, the Official Committee of Retirees announced it had reached a tentative pension deal that calls for a raised minimum-pension threshold below which cuts will not be imposed. The deal would also cap cuts to monthly pensions at 8.5%. The board had initially proposed cutting 25%.

The Committee of Retirees’ debt deal is slated to be included in the planned support agreement (PSA) announced by the board June 16, which would restructure about $35 billion in general obligation and Public Buildings Authority debt.

Ambac reiterated that in a summary of the latest PSA, the board states that $55 billion of pension liabilities are expected to be adjusted through the commonwealth’s plan of adjustment.

“Between the release of the New Fiscal Plan and the PSA, pension obligations have ballooned approximately $5 billion more, and yet Ambac and other creditors are no closer to understanding the assumptions underlying the massive figure,” Ambac said.

Judge Laura Taylor Swain agreed Tuesday to discuss Ambac’s request at the July 24 omnibus hearing.

The board didn’t immediately return a request for comment for this report.

Unsecured creditors challenge 2011 Puerto Rico bond issuance

The U.S. District Court for the District of Puerto Rico (CB file photo)

Committee contests about $1 billion; says insurer Ambac supports suit

SAN JUAN — The Unsecured Creditors Committee (UCC) in Puerto Rico’s bankruptcy-like proceedings is challenging about $1 billion in general obligation bonds (GOs) issued in 2011 that remain outstanding, contending they were underwritten in violation of constitutional debt limits.

In its objection, filed May 21, the UCC said Ambac, which insures billions of dollars in Puerto Rico bonded debt, supports the challenge. The UCC has joined the island’s Financial Oversight and Management Board in challenging the legality of some of the commonwealth’s debt, including $6 billion in GOs issued in 2012 and 2014.

On March 17, 2011, the commonwealth issued $442 million in Public Improvement Refunding Bonds, considered GOs, to repay advances made to the commonwealth under a line of credit from the island’s Government Development Bank (GDB) and to pay interest on the bonds themselves. On July 12, 2011, the commonwealth then issued $304 million aggregate principal amount of Public Improvement Bonds of 2011.

On that same day, the commonwealth also issued $52 million in the aggregate principal amount of Public Improvement Refunding Bonds and $245.9 million in the aggregate principal amount of Public Improvement Refunding Bonds that were issued, among other reasons, to fund termination payments under certain interest rate swap agreements.

“For many years leading up to the Petition Date, the Commonwealth was running a structural deficit, i.e., recurring revenues were insufficient to cover recurring expenses. Rather than balance the budget by raising taxes and/or reducing spending, the Commonwealth borrowed money from GDB and bondholders to fund annual operating expenses and debt service,” the UCC said.

Of the 2011 GOs, about $412.5 million in net proceeds was used to refinance GDB credit lines to finance deficit spending by paying interest on GOs. Some $260 million in net proceeds was used to refund other bonds, “including Commonwealth GO bonds that indirectly financed deficit spending by refunding Commonwealth GO bonds the proceeds of which were used to pay debt service on other Commonwealth GO bonds and by paying a portion of $88 million in advances under a GDB line of credit.”

The commonwealth’s average internal revenue for the prior two fiscal years (2009 and 2010) was $7.32 billion.

“With the issuance of some of GO Bonds, the maximum debt service in any fiscal year (including PBA [Public Buildings Authority] Bond debt service) was $1.1092 billion in 2012, which is more than 15% or 15.2% to be precise of the Commonwealth’s average internal revenues for the prior two fiscal years,” the UCC said, referring to constitutional debt limits.

The UCC and the fiscal board separately claim the PBA is a “sham” structure to divert the Puerto Rico Constitution’s debt limits.

Swain’s World: Ambac no Longer Backing Cofina Bonds

Cofina Liquidating Trust Assets, Leaving Unsecured those who Chose not to Commute their Insurance for Pennies

Editor’s note: The following originally appeared in the April 4-10, 2019, issue of Caribbean Business.

Holders of Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) bonds got a recent surprise upon learning that Ambac Assurance Corp., a bond insurer, appeared to no longer be backing the bonds after the recent Cofina restructuring.

“Did anyone notice the latest Cofina robbery? Ambac just announced they are liquidating the trust assets securing those few insured who elected not to commute their insurance for pennies. Now, policyholders will get the liquidated value from the trust!” noted Elliot Asset Management, one of the investment firms that has questioned the adjustment plan for Cofina approved by the Title III court in February. The move leaves these Cofina bondholders up in the air.

The debt adjustment plan restructured about $16 billion in island debt.

Under the Cofina term sheet, which contained confusing wording, holders of AAC insured senior Cofina bonds had two options. The first was to commute their rights pertaining to the AAC insurance policy associated with the senior Cofina bonds, which would then be canceled, in exchange for new Cofina bonds, cash amounts to be paid by Cofina and other considerations by ACC. The second option was to exchange their senior Cofina bonds for trust certificates issued by a custodial trust, which would get distributions from Cofina under the new bonds, plus payments under the existing AAC insurance policy with respect to any shortfalls.

It appears Ambac, which participated in the negotiations for the Cofina deal, had tried to cut its losses all along. Claude LeBlanc, CEO for Ambac, in a recent conference call involving its fourth-quarter earnings said a key Ambac objective was achieved when the Cofina plan of adjustment went into effect Feb. 12. “Ambac was actively involved in crafting the terms of the consensual agreement, which became the basis for the Cofina plan of adjustment,” he said.

About 75 percent of Ambac’s insured Cofina bondholders elected to commute Ambac’s insurance policies in exchange for cash and new Cofina bonds. “We believe the Cofina Plan of Adjustment along with the associated commutations and collateralized trust structure is a tremendous achievement for Ambac in managing its overall risk exposure,” LeBlanc said.

Through the execution of the Cofina Plan of Adjustment, Ambac fully addressed and significantly reduced its largest single-risk exposures, which represented about 78 percent of Ambac’s total Puerto Rico exposure. After months of intense negotiations, Ambac and other senior Cofina creditors received a 93 percent notional recovery, he said.

Important protections clarifying that the share of sales used in tax earmarks for Cofina are not available resources for the commonwealth and dismissals of challenges to the Cofina structure were achieved. “As a result, Ambac’s insured Cofina exposure and our overall insured Puerto Rico debt-service exposure decreased by $5.5 billion. The 25 percent of holders, who elected not to commute their policies, received units issued by trust. This trust holds a ratable distribution of cash and new Cofina bonds, which will significantly off set Ambac’s remaining Cofina insurance liability,” LeBlanc said.

Through the Cofina transaction, which restructured more than $16 billion in debt, the government of Puerto Rico will receive, according to a P.R. Fiscal Agency & Financial Advisory Authority (Aafaf) press release, access to $425 million annually for the next 40 years.

The avoidance cliff

In addition, this week, U.S. District Judge Laura Taylor Swain granted a request from the Unsecured Creditors Committee (UCC) and ordered Puerto Rico’s Financial Oversight & Management Board to submit by April 5 a preliminary list of potential avoidance actions it intends to pursue.

Avoidance actions are typically those in which a trustee rejects or avoids actions taken by the debtor with respect to its property during a specific time before a bankruptcy filing. For instance, a trustee can seek the return of property sold by the debtor if it was sold fraudulently.

Earlier this month, the UCC filed a motion urging the court to require the fiscal board to start acting on the avoidance actions before a statute of limitations, scheduled for May, ran out.

After the board reveals its preliminary list of avoidance actions, it must then confer with the UCC about the anticipated allocation of litigation responsibilities, the judge said.

The board must then submit its final list of commonwealth avoidance actions, including designations to the committee by April 10. On April 12, the committee must submit a motion seeking the appointment of a trustee who can assert the avoidance actions. The board has until April 15 to file a motion opposing the trustee.

The board and committee will file by April 22 a joint status report related to avoidance actions for other debtors. “The Oversight Board shall file an informative motion disclosing the final list by May 6,” the judge said.

Puerto Rico, fiscal board seek court help for new Cofina bonds’ tax exemption

SAN JUAN – In connection with the consummation of the debt adjustment plan for the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym), the government-owned corporation, the island’s Financial Oversight and Management Board and its Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym), along with certain bondholders such as Ambac Assurance Corp., have filed a document in court, seeking a ruling or an agreement with the Internal Revenue Service, declaring the new Cofina bonds tax-exempt.

The “Tax Exemption Implementation Agreement” was filed in court Wednesday and provides that the parties “shall, among other things, continue to use reasonable best efforts to pursue a private letter ruling or other agreement with the Internal Revenue Service regarding the tax-exempt nature of the Exchange Bonds (as defined in the Tax Exemption Implementation Agreement).”

The tax exemption is defined as any bond whose interest is excluded from gross income for purposes of the federal income tax.

The restructuring of Cofina’s $17 billion debt, approved earlier this month, has two parts. In the first, commonwealth and Cofina bondholders settled their dispute over ownership of the sales & use tax (IVU by its Spanish acronym) by agreeing to divide the 5.5 percent portion of the 11.5 percent sales & use tax. From the 5.5 percent portion, Cofina will keep 53.6 percent and the commonwealth receives the rest. According to court documents, the split will result in the commonwealth receiving about $400 million a year from the sales & use tax over the next 40 years.

Secondly, under the debt plan, Cofina bondholders will exchange their current bonds for new bonds whose value is being cut. Cofina senior bondholders will recover 93 percent of the value of their original bonds and junior bondholders 53 percent.

Cofina said it filed a request in December for a private letter ruling or closing agreement with the IRS with respect to the new Cofina bonds, which began to be traded Feb. 12.

“Severely limited IRS operations during the recent federal government shutdown have hindered the IRS’s ability to make important determinations relating to the potential tax-exempt nature of certain of the Applicable Bonds…and such determinations may not be made prior to the Effective Date,” the agreement reads.

The agreement is slated to end Jan. 1, 2020, or if the IRS issues a ruling.

Gov’t, Bondholders File Lawsuit Over Fund Distributions

Editor’s note: The following originally appeared in the Dec. 20, 2018 – Jan. 2, 2019, issue of Caribbean Business.

The government and bondholders of the Puerto Rico Sales Tax Financing Corp. (Cofina) have asked the court for an emergency scheduling to resolve a dispute contained in Cofina’s debt-adjustment plan, which is slated to be evaluated in January by the U.S. District Court.

Resolving the dispute is essential for moving forward with the Cofina deal, a source said. Judge Laura Taylor Swain heard the request for time to resolve the dispute at the omnibus hearing which took place Wednesday, Dec. 19.

The dispute is related to Section 19.5 of the plan, which discusses delivery of distributions. The section states that distribution and deliveries to bondholders will be made to their respective addresses. However, the initial distributions of cash by the disbursing agents will be made to the Bank of New York Mellon (BNYM) as trustee of the existing securities, which will then distribute the funds.

The section says that the distribution shall not be stopped on account of lawsuits filed by Whitebox and Ambac, a provision that is at the core of the dispute. Whitebox sued BNYM in New York state court in April 2017 alleging the bank breached its duty as trustee for Cofina debt to protect senior bondholders. Whitebox said BNYM should have accelerated or frozen payouts on Cofina debt after technical defaults by Puerto Rico that began in 2015, including the government’s plan to restructure its debt. The lawsuit was stayed. A similar lawsuit was filed by Ambac Assurance Corp., which was also stayed.

The government wants the court to agree to a schedule to resolve the dispute. BNYM wants the court to determine if it should withhold any amounts of money that it had incurred to defend itself from the lawsuits.

“The Cofina plan provides for the court to determine whether BNYM is entitled to any security from Whitebox or Ambac, in the form of a distribution holdback or a bond being posted for the benefit of BNYM in connection with fees and expenses which may be incurred by BNYM in the defense of the lawsuits, and if such security is warranted,” the government said in court documents.

As a result of discussions with mediators, the Financial Oversight & Management Board as well as the lawyers for BNYM, Whitebox and Ambac, developed procedures regarding consideration of the dispute contemplated in Section 19.5 of the Cofina debt plan, to which all parties had agreed to in September 2018.

The schedule is the following: Jan. 2, 2019, will be the deadline by which BNYM must file any briefs or declarations supporting the amount the bank contends should either be withheld from distributions to Whitebox and Ambac or posted by Whitebox and Ambac pursuant to Section 19.5 of the Cofina plan. It is also the deadline on which Whitebox and Ambac must file any brief or declarations supporting their position that no amounts are required either to be withheld from their distributions.

On Jan. 9, 2019, BNYM must file any responsive papers to the Whitebox and Ambac declarations. Whitebox and Ambac must also file their responses. From Jan. 10 through Jan. 15, 2019, each party can take depositions. Then, on Jan. 16, there will be a hear-ing on the dispute. A confirmation hearing on the Cofina debt agreement is also slated for Jan. 16.

Transparency issues tarnish Puerto Rico bankruptcy process


(CB File)

Despite the passage of Promesa and the imposition of a Financial Oversight & Management Board to oversee commonwealth finances, the availability and quality of the government’s financial data continue to be a concern at all levels.

Last week, the Ad Hoc Group of Puerto Rico General Obligation (GO) bondholders, the Ad Hoc Group of Prepa (Puerto Rico Electric Power Authority) Bondholders, the Mutual Fund Group, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., Ambac Assurance Corp. and Syncora Guarantee Inc. wrote to the governor urging him to make public the underlying supporting materials and analyses being shared with the island’s fiscal oversight board to evaluate the proposed fiscal plans. This was after the Puerto Rico Fiscal Agency & Financial Advisory Authority (Fafaa) had rejected the GO group’s request for disclosure while the plans were still being formulated. Still, the government in a reply denied it was withholding financial information from bondholders or stakeholders. The bondholders’ concerns are legitimate because the most recent fiscal plans do not allocate funding for payment of debt, and the creditors need to be able to understand why.

Since the commonwealth filed for bankruptcy under the Puerto Rico Oversight, Management & Economic Stability Act (Promesa), it has insisted it seeks to remain transparent and share information on the island’s fiscal state. As a matter of fact, in a court-brokered proceeding, the right to do discovery is enforced by a judge. That right, however, is not unlimited. The parties cannot go on a fishing expedition but can only seek information that is relevant to the controversy. Certain materials, such as communications between lawyers and clients, are privileged. That is why Magistrate Judith Dein last week put a stop to efforts by specific bondholders to obtain certain communications between the commonwealth, Fafaa and its fiscal oversight board, as well as additional 2017 and 2018 fiscal plan development materials.

Even though government documents, including economic data, are public, the commonwealth as well as the Oversight Board, the latter of which is protected by the federal law Promesa, have been less than forthcoming in providing information. Just last week, the American Federation of State, County & Municipal Employees International Union (AFSCME), American Federation of Labor & Congress of Industrial Organizations (AFL-CIO), American Federation of Teachers, the United Automobile, Aerospace & Agricultural Implement Workers of America (better known as the United Automobile Workers [UAW]), Service Employees International Union (SEIU), on their own behalf, their local affiliates in Puerto Rico and other unions, sought discovery information on pensions to prove the government may be breaking the law in its handling of retirement funds.

The unions contend the government has failed to create individual defined-contribution accounts; has failed to appoint a new retirement board; and appears to be holding a single omnibus “Employee Withholding” account, containing not only $133 million of the “individual defined-contribution retirement account” money, but also other commingled assets, including loan repayments being made to the commonwealth.

Judge Swain asks for moderation of professionals who work for Puerto Rico fiscal board

“Since July 1, 2017, when employees should have been able to invest their individual retirement accounts in low-cost index funds as stated in the March 2017 Fiscal Plan Certification, the S&P 500 has risen from 2,423.41 at market close on June 30, 2017, to 2,701.33 at market close on Feb. 21, 2018—an increase of 11.4 percent. As far as the commonwealth employees know, their mandatory contributions have essentially been hidden under a mattress by the commonwealth that entire time,” the unions say.

Ambac, which insures and owns billions in Sales Tax Financing Corp. (Cofina), GO and other bonds, has said it has sought to understand the commonwealth’s financial condition for years. In April and July of 2015, Ambac requested information regarding the financial condition of Cofina, the Highways & Transportation Authority (HTA), Infrastructure Financing Authority (Prifa or AFI by its Spanish acronym), and P.R. Convention Center District Authority (PRCCDA), in accordance with the contractual right to receive such information. The requests were ignored. The company sued HTA in 2016 and the court ordered the entity to provide information to Ambac. Although HTA promised to provide the documents, it engaged in delay tactics to benefit from Promesa, which was slated to be passed by Congress.

“By that time, however, it became clear that HTA’s strategy was to run out the clock on discovery while Promesa was pending in Congress. After Promesa was passed June 30, 2016, HTA promptly filed a notice of stay pursuant to the statute, precluding the relief Ambac would have almost certainly obtained in light of HTA’s representations to the court. This pattern of behavior continued into 2017, when Ambac requested information concerning the Fiscal Plan and the assumptions underlying it,” the company said.

Another instance of what appeared to be delay tactics and lack of transparency was when the Oversight Board may have been stonewalling a probe into the causes of the debt. Last year, the Committee of Unsecured Creditors asked Judge Laura Taylor Swain for a discovery order to ascertain the causes of Puerto Rico’s financial crisis. The Oversight Board at the time said it was going to complete its own probe into the financial crisis and the discovery was not needed. Swain deferred the decision to Magistrate Dein, who ruled that once the Oversight Board retains its researcher for the investigation it intends to undertake, she could confer with the Creditors’ Committee attorneys to determine whether they can agree that certain areas of investigation can either be allocated between them or coordinated among them. They were ordered to issue a report last September. The Oversight Board hired John Couriel of the Kobre & Kim law firm to conduct the investigation but as of September, Couriel only had a “working plan.”

An Interim Report, published Oct. 30, 2017, by the Oversight Board, said Couriel had indicated it would take 200 days to do the job.

Puerto Rico fiscal board says federal law gives it purview over power utility restructuring

Judge dismisses Ambac’s claim against Puerto Rico highway authority

SAN JUAN – U.S. District Court Judge Laura Taylor Swain dismissed a complaint filed by Ambac Assurance Corp. against the Puerto Rico Financial Oversight and Management Board that sought to invalidate the Highways & Transportation Authority’s (HTA) fiscal plan and establish a lien on its revenues.

Judge Swain stated that the Promesa law prevents her from determining to invalidate the HTA’s fiscal plan and thus she has no jurisdiction over the matter.

She said Congress entrusted the ultimate decision to certify a fiscal plan to the island’s fiscal oversight board.

“Under Promesa’s statutory framework, it is only at the plan confirmation stage that the Court determines whether a proposed plan of adjustment complies with, among other things, the provisions of Title II of the United States Code which have been made applicable to these cases by Section 301 of Promesa and the relevant provisions of Promesa,” she said.

Ambac resorts to court for sales tax info it says Puerto Rico isn’t providing

The court had heard arguments on Ambac’s request on Nov. 21. The bond insurer said it owns about $16 million in HTA-issued bonds in addition to insuring $53 million in revenue bonds, but that following the Moratorium Act, HTA stopped payments.

On the matter of HTA’s revenues, the judge said the issue was not “ripe” enough to determine whether Ambac’s money was taken.

On Feb. 28, 2017, the governor’s administration and the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF) submitted an initial fiscal plan to the fiscal oversight board, which it rejected on March 9, 2017,  on grounds that it understated commonwealth spending.

On March 11, 2017, the administration and AAFAF submitted a revised fiscal plan, which the fiscal board vertified two days later. On or about April 28, 2017, the Legislature passed the Fiscal Plan Compliance Act to adapt local law in line with the plan.

On June 20 2017, AAFAF, on behalf of HTA, ordered the Bank of New York Mellon to “refrain from making the scheduled July 1, 2017 payment to the Bondholders” because it would constitute “an act to exercise control” over HTA’s property in violation of the automatic stay under bankruptcy.

“Plaintiff has failed to carry its burden here. Specifically, Plaintiff has failed to demonstrate that it has received a final decision from the state regarding any alleged taking of its property,” the Judge Swain said.

Judge Swain dismisses Puerto Rico highway authority bondholders’ suit

What are creditors demanding in their lawsuits against the government?

SAN JUAN – With the end of Promesa’s stay on litigation May 1, various types of creditors decided not to wait and filed several lawsuits against the government of Puerto Rico.

Currently, four new actions were filed against the government and the fiscal control board. Meanwhile, Ambac–a municipal-bond insurer–also sued the U.S. Treasury for certain Infrastructure Financing Authority (Prifa) bonds and whose payment is guaranteed by revenues from the rum cover-over program that the island receives from the federal government.

These lawsuits are in addition to more than 10 already filed by creditors since the beginning of 2016 and which the court suspended because of Promesa’s stay. These litigations would resume when the mechanism expires unless the board files restructuring cases under the protection of a judge, as allowed by Title III of the federal law. The latter would restore the stay against collection actions by creditors.

GOv. Ricardo Rosselló (Juan J. Rodríguez/CB)

Gov. Ricardo Rosselló (Juan J. Rodríguez/CB)

The following is a list of some of the claims by the creditor groups that sued the government of Puerto Rico on Tuesday.

Aurelius et al. v. Government of Puerto Rico

A group of hedge funds–which includes Aurelius, Autonomy and Monarch–sued in a New York court, demanding that the government pay nearly $243 million in general obligation (GO) debt service it hasn’t covered, plus interest. The plaintiffs own $1.4 billion in GOs issued by the government in 2014. Read the lawsuit.

Ambac v. Government of Puerto Rico (I)

The Sales Tax Financing Corp. (Cofina by its Spanish acronym) bond insurer asked the Federal District Court in San Juan to invalidate the certified fiscal plan and the recently signed House Bill 938. They claim that both are unconstitutional and in violation of Promesa. Ambac is trying to prevent the government from using pledged sales & use tax (IVU by its Spanish acronym) funds that guarantee the payment of Cofina’s debt. Read the lawsuit.

Ambac v. Government of Puerto Rico (II)

In addition to the fiscal plan and H.B. 938, the insurer also asked the federal court in Puerto Rico to overrule the moratorium orders and legislation in effect since the end of 2015. Through them, the government withholds, or claws back, certain revenue sources–highway tolls; license fees and taxes on tobacco products, gasoline and hotel rooms, among others–that guarantee payment of the debt incurred by Prifa and the Highways & Transportation and Convention Center District authorities. They claim the orders are also unconstitutional and contrary with Promesa. Ambac intends to prevent the government from using these funds for other uses than the payment of the debts they guarantee. Read the lawsuit.

Ambac v. U.S. Treasury (III)

Finally, Ambac also sued the U.S. Treasury in a Washington, D.C., court, in relation to the money transferred to the Puerto Rican government from the federal excise tax on the sale of rum. The local government has clawed back this source of revenue, which guarantees the payment of certain Prifa bonds, through one of the moratorium orders. The insurer requests that Treasury stops transferring these funds to the government until the clawback dispute is resolved. As an alternative, it seeks that a receiver retain these funds in a separate account. Read the lawsuit.

Rodríguez-Perelló et al. v. Government of Puerto Rico

A coalition of institutional and hedge funds that own Cofina senior bonds sued the government in Puerto Rico’s federal court. The plaintiffs request that the court declare invalid the fiscal plan and H.B. 938, as being contrary to Promesa and for impairing the rights of these bondholders. They also demand that the fiscal plan be amended so it doesn’t affect Cofina, as well as declaring an event of default–whose remedy includes accelerating the payment of Cofina’s outstanding debt. They also request the court to prohibit the government from acting in a way that affects the transfer of the pledged IVU portion that guarantees the payment of this debt. In sum, these creditors seek that the government not include Cofina’s debt, nor the IVU money that guarantees it, as part of Puerto Rico’s debt restructuring plan. Read the lawsuit.

Ambac Announces Management Changes

Ambac Financial Group Inc., a holding company whose subsidiaries, including Ambac Assurance Corp. (AAC), announced Tuesday management changes in, and consolidation of, its Portfolio Risk Management Group.

Cathleen J. Matanle, in mutual agreement with Ambac, will retire from her position as Senior Managing Director and Head of Portfolio and Credit Risk Management as of September 30, 2016. Upon Matanle’s retirement, David Barranco, currently Senior Managing Director and Head of Restructuring and Corporate Development, will assume additional responsibilities for the Portfolio and Credit Risk Management Group. Barranco will continue to report directly to Nader Tavakoli, President and Chief Executive Officer, according to a statement.

nader tavakoli Ambac

Ambac President and CEO Nader Tavakoli

With this change, Ambac will complete the consolidation of its portfolio risk management function from three teams into one, combining portfolio surveillance, credit and, risk and loss mitigation for both the Ambac Segregated Account and Ambac Assurance.

Commenting on today’s announcement,  Tavakoli said, “We are grateful for Cathy’s 15 years of dedicated service to Ambac. We deeply appreciate her many contributions to the company and wish her well in her future endeavors. We’d also like to congratulate Dave as he expands the scope of his responsibilities at Ambac.”

The company, which guarantees $2.5 billion in Puerto Rico debt, recently sued the commonwealth to paralyze the clawback of government money. It also sued the Puerto Rico Highway Authority to have the agency put in receivership.

Class Action Suit Filed Against Ambac

SAN JUAN – Various law firms have been issuing releases announcing that a class action lawsuit has begun in the U.S. District Court for the Southern District of New York on behalf of investors who purchased Ambac Financial Group Inc. securities between Nov. 13, 2013 and June 30, 2015.

U.S. District Court for the Southern District of New York (Photo by Sheila as part of the Commons-Wikipedia Takes Manhattan project)

U.S. District Court for the Southern District of New York (Photo by Sheila as part of the Commons-Wikipedia Takes Manhattan project)

According to the complaint, Ambac made materially false and misleading statements and omitted material facts concerning the company’s losses and loss exposure on its public finance bond portfolio, risk management and internal controls. The complaint further alleges that these misstatements allowed the stock to trade at artificially inflated prices throughout the class period.

Following the June 29, 2015, revelation that Puerto Rico would likely default on upcoming interest payments, and that as a result, Ambac was potentially liable for up to $2.5 billion worth of commonwealth debt the company insured, Ambac stock fell approximately 29%, causing investors substantial losses, according to at least three law firm releases looking to represent Ambac shareholders.

“Then on May 11, 2016, Ambac admitted in an SEC filing that management had identified a material weakness in its internal control over financial reporting,” one of the “investor alert” releases reads.

They also add that the lead plaintiff deadline, a 60-day period after a securities class action has been filed within which applications must be filed, was set for Aug. 29.