Two of Assured Guaranty Ltd.'s bond insurance subsidiaries, Assured Guaranty Corp. and Assured Guaranty Municipal Corp., filed an adversary complaint in the Federal District Court in Puerto Rico to challenge the legality of the commonwealth's decision to divert special revenue bond collateral from the payment of bonds issued by the Puerto Rico Highways and Transportation Authority to other allegedly "unauthorized" uses.
The complaint alleges that using special revenue bond collateral for things other than the payment of the Puerto Rico Highways and Transportation Authority bonds violates the special revenue protections of the Bankruptcy Code and prevents the commonwealth from returning to the capital markets. The action also "impairs Assured Guaranty's contractual rights and takes its property interests," according to a news release.
The complaint seeks an injunction to stop Puerto Rico from further violating the bonds' special revenue protections. The insurance companies also want the commonwealth to remit the pledged special revenues related to the bonds according to the terms of the Bankruptcy Code's special revenue provisions.
In May, Puerto Rico filed for protection from its creditors to restructure its $70 billion debt load. Assured Guaranty President and CEO Dominic Frederico criticized the fiscal plan that its oversight board approved, saying that it is "absolutely an insult relative to the law, to our rights, to everything we would consider the basis to begin negotiations." Assured Guaranty challenged the legality of the fiscal plan.