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Creditors say Puerto Rico's fiscal plan violates law

Holders and insurers of bonds issued by the Commonwealth of Puerto Rico sent a letter to the Puerto Rico Oversight Board, saying a fiscal plan certified by the board ignores creditor rights in violation of the Puerto Rico Oversight Management and Economic Stability Act requirements.

The letter was sent by Assured Guaranty Corp. and Assured Guaranty Municipal Corp., Ad Hoc Group of Puerto Rico General Obligation Bondholders, and certain funds managed by Franklin Advisers Inc., Oppenheimer Funds Inc. and Santander Asset Management LLC. The funds hold about $3.65 billion of bonds issued by COFINA and about $1.85 billion of bonds issued or guaranteed by Puerto Rico.

"By providing that payment on constitutional debt comes after all of the commonwealth's expenditures, the fiscal plan violates Puerto Rico's constitution," the group wrote.

The creditors argued that the fiscal plan is breaking the law by transferring COFINA's property to Puerto Rico's general fund. Assured Guaranty also opposed the diversion of collateral securing bonds issued by Puerto Rico Infrastructure and Finance Authority, Puerto Rico Convention Center District Authority and the Highways and Transportation Authority.

The creditors also said the fiscal plan does not differentiate between expenses for essential services and those for non-essential services, adding that "it is not plausible that 100% of the approximately $18 billion in average annual expenses projected under the Fiscal Plan are for essential services." They also questioned the inclusion of an incremental $6.2 billion reconciliation adjustment over 10 years in the fiscal plan.

Assured Guaranty and Assured Guaranty Municipal insure about $1.75 billion of bonds issued or guaranteed by Puerto Rico and about $1.68 billion of secured revenue bonds issued by Puerto Rico Infrastructure and Finance Authority, Puerto Rico Convention Center District Authority and the Highways and Transportation Authority.