Puerto Rico bond insurer suit targets plan’s payment priority, haircut

By Caroline Salls

Pittsburgh, June 9 – Puerto Rico bond insurer Ambac Assurance Corp. filed a complaint Thursday against the commonwealth and several government entities and individual defendants that claims that Puerto Rico’s fiscal plan improperly downgrades the priority of the commonwealth’s most senior debt obligations and “imposes a 77.4% haircut on debt obligations.”

According to the complaint filed with the U.S. Bankruptcy Court for the District of Puerto Rico, the debt obligation haircut is made “while actually increasing the commonwealth’s spending during the fiscal plan’s 10-year span.”

Ambac said the fiscal plan, which was certified by the Fiscal Management and Oversight Board for Puerto Rico, downgrades obligations including general obligation and revenue bond debt, to the very bottom of the payment priority waterfall, despite Puerto Rico law requiring the exact opposite.

Through its lawsuit, Ambac said it is asking the court to rule that the fiscal plan and Puerto Rico’s Fiscal Plan Compliance Act are unconstitutional and illegal, as well as to grant an injunction against any plan of adjustment premised on that fiscal plan or the act.

Ambac said it is also seeking a ruling that specified pledged special revenues are classified as such under the Bankruptcy Code and that the defendants’ actions have violated the pledged special revenue protections established by the Bankruptcy Code.

Finally, the insurer is seeking an injunction preventing the defendants from taking any action that would impair, or continue the impairment of, the free flow of pledged special revenues to the Puerto Rico Highways and Transportation Authority and its revenue bondholders.

Puerto Rico announced its Title III petition filing on May 3. The case number is 17-03283.

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