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Bond insurers want PREPA to turn over pledged special revenues

MBIA Inc. unit National Public Finance Guarantee Corp. and Assured Guaranty Ltd. units Assured Guaranty Municipal Corp. and Assured Guaranty Corp. have filed adversary complaints against the Puerto Rico Electric Power Authority, or PREPA, for failing to remit pledged special revenues to the bond trustee for the timely payment of debt service on their bonds.

The terms of the PREPA trust agreement, the U.S. Constitution and the Puerto Rico Oversight Management and Economic Stability Act, or PROMESA, requires PREPA to turn over pledged revenues to the bond trustee, and that obligation holds during a Title III bankruptcy proceeding, National Public Finance CEO Bill Fallon said in a statement.

PREPA chose to use its Title III proceeding to "withhold and misapply" special revenue bond collateral without providing fair compensation to PREPA bondholders and their insurers, Assured Guaranty said. The power authority does not have any basis to ignore contractual obligations or take collateral pledged as security for its bondholders, the insurer added.

Among other things, Assured Guaranty seeks a judgment declaring that PREPA violated the special revenue protections provided to the bonds under the Bankruptcy Code, and an order requiring it to remit the pledged special revenues.