New bond insurer files lawsuit against Puerto Rico
Another bond insurer has filed a lawsuit against Puerto Rican government officials over how they diverted tax revenues to meet certain bond payments amid an economic crisis.
The lawsuit filed by New York-based Financial Guaranty Insurance Company was consolidated on Thursday with a similar one filed two weeks ago by Assured Guaranty Corp and Ambac Assurance Corporation.
Financial Guaranty accused US territory government officials of violating the constitution, according to the lawsuit filed January 19. It said that at least US$164 million of pledged funds have been diverted for what it called unconstitutional uses. The company said it insures some US$1.2 billion of Puerto Rico's debt.
The US territory recently defaulted on US$37 million in interest on bonds, and officials have said there is no money available for future payments.
Financial Guaranty said in the lawsuit that the recent default meant the company had to pay more than US$6 million in claims.
US$72-billion public debt
Puerto Rico is struggling with US$72 billion in public debt that the governor has said is unpayable and requires restructuring.
On Wednesday, US Treasury Secretary Jacob Lew called on Congress to approve a restructuring mechanism to help the island deal with debt. He also said some kind of oversight authority that respects Puerto Rico's system of self-government is needed.
"Now is the time to act, and I'm here to further that effort," Lew said after meeting with Governor Alejandro Garcia Padilla. "It would be a mistake for anyone to think there's a Plan B that comes anywhere near to being as effective."
Puerto Rico already has defaulted on several bond payments and warned it does not have the money to make upcoming payments.
Lew noted that up to 3,000 Puerto Ricans are leaving the island every week for the US mainland because of nearly a decade of economic stagnation.