Assured Guaranty sues over Puerto Rico oversight board appointments
Two bond insurance subsidiaries of Assured Guaranty have filed an adversary complaint challenging the constitutionality of appointments to the Financial Oversight and Management Board for Puerto Rico (Oversight Board).
The lawsuit contends that appointments to the Oversight Board violated the Appointments Clause of the United States Constitution, and asks the Title III Court to dismiss the Puerto Rico Highways and Transportation Authority’s (“HTA”) Title III petition based on the Oversight Board’s lack of lawful authority to initiate such Title III proceeding.
Puerto Rico has utilized Assured Guaranty bond insurance to reduce its cost of borrowing in the municipal bond market in order to finance a wide range of projects, and the associated savings benefited Puerto Rico as soon as the bonds were issued, Assured Guaranty said. Today, more than $5 billion of those insured bonds are outstanding, and Assured Guaranty has already paid more than $820 million to cover Puerto Rico’s failure to honour its commitment to pay the debt service on those bonds, according to the bond insurer.
Since its inception, the Oversight Board has failed to engage meaningfully with Assured Guaranty and other creditors and stakeholders, as it was mandated to do under Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), Assured Guaranty explained. The 2016 US federal law established an oversight board, a process for restructuring debt, and expedited procedures for approving critical infrastructure projects in order to combat the Puerto Rican government-debt crisis.
“By enacting PROMESA, Congress intended to encourage consensual settlements between creditors and Puerto Rico, including its instrumentalities, in order to restore the capital market access necessary for Puerto Rico to achieve a sustainable economic recovery. This mandate has been turned on its head by the Oversight Board,” said Assured Guaranty CEO Dominic Frederico.
“Although we originally believed the PROMESA framework, however imperfect, would minimize political interference, accelerate the necessary negotiations, and curtail litigation that would impede the island’s recovery, the board members’ disregard for the rule of law has had the opposite effect, leading us to re-examine the manner in which they were appointed.”
As stated in the complaint, none of the Oversight Board members were appointed in conformity with the Appointments Clause. Rather, under PROMESA’s appointments procedures, the Oversight Board members were effectively chosen by individual members of Congress and were never confirmed by the US Senate.
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