Puerto Rico bond insurer Assured Guaranty Ltd. said late on Friday it voluntarily withdrew a complaint that challenged the legality of the island’s fiscal turnaround plan, citing the devastating impact of Hurricane Maria.
The move may temporarily ease Puerto Rico’s financial problems as it struggles to get back on its feet after Maria hit last month, destroying the electrical grid and leaving most of the island’s 3.4 million inhabitants without power.
Assured Guaranty, along with a second insurer MBIA Inc., filed their lawsuit against the island’s government and a federally appointed financial oversight board on May 3, a day after Puerto Rico announced a historic restructuring of its public debt.
“While we continue to believe the current fiscal plan is illegal, we have determined to voluntarily dismiss our complaint without prejudice at this time due to the crisis in Puerto Rico following Hurricane Maria, and the high likelihood that the fiscal plan will have to be revised,” Dominic Frederico, chief executive of Assured Guaranty said in a statement.
The lawsuit contended the fiscal plan, approved in March by the Financial Oversight and Management Board for Puerto Rico, violated provisions of the 2016 Puerto Rico rescue law known as PROMESA and the U.S. Constitution.
Puerto Rico in May filed a form of bankruptcy under the Title III provision in the PROMESA law. The island’s capital structure has 18 public agencies owing a combined $120 billion in bond and pension debt.
Frederico said the focus should be on restoration and relief for Puerto Rico, not on their arguments, at least for the time being.
“If insufficient progress is made in developing a new fiscal plan that complies with PROMESA and respects Assured Guaranty’s constitutional, statutory and contractual rights, Assured Guaranty will refile the lawsuits at an appropriate time,” the statement said.
In May, when the lawsuit was filed, the two firms had about $9 billion at stake in the island’s debt crisis. Assured could be on the hook for as much as $5.4 billion in bondholder losses on defaulted debt, while MBIA’s National Public Finance Guarantee Corp has about $3.6 billion of exposure.
The plan, prior to the hurricane, forecast the island having only $800 million a year to service debt, likely meaning major haircuts for bondholders.
(Reporting By Daniel Bases; Editing by Bill Rigby)
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