Assured Guaranty slams plan for Puerto Rico debt restructuring

Assured Guaranty has slammed the Financial Oversight and Management Board’s (FOMB) Plan of Adjustment, which aims to restructure $35 billion of debt and other claims against institutions in Puerto Rico.

The plan is intended to restructure claims against the Commonwealth of Puerto Rico, the Public Building Authority, the Employee Retirement System, and more than $50 billion of pension liabilities. FOMB said it “provides a framework to reduce the Commonwealth of Puerto Rico’s debt to sustainable levels and provides a path to exit bankruptcy.”

The plan would reduce Puerto Rico’s $35 billion debt by more than 60 percent to $12 billion, it said.

But Assured Guaranty said the plan violates Puerto Rico law, its constitution and the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).

“The Plan also ignores the rule of law on which our society and financial systems rely, and constitutional liens and priorities,” said Assured Guaranty in a statement. “The Plan was developed in the absence of consensual discussions with the island’s long-term and largest creditors and is based at its core on a plan support agreement whose signatories represent only a small fraction of the outstanding debt it purports to restructure.”

Assured Guaranty criticised the Oversight Board for repeatedly producing fiscal plans without sufficiently consulting the island’s long-term creditors, slamming its financial assumptions as “unrealistic and inaccurate,” which it argued have cost the island “hundreds of millions of dollars in litigation fees and time wasted.”

Assured Guaranty added: “By disregarding basic tenets of PROMESA, Puerto Rico law and the US and Puerto Rico constitutions, the Oversight Board has violated the explicit terms of the Commonwealth’s general obligation bonds and special revenue bonds and undermined the underpinnings of the US municipal bond market.” This could end up raising the cost of infrastructure development across the US, it warned.

Assured Guaranty said Puerto Rico had an opportunity to end its debt crisis and reopen the door to capital markets access, but it requires “consensual resolutions and accurate financial data” rather than “a cramdown on investors who have supported the island for decades.”