June 27 (Reuters) - Insurers of billions of dollars of Puerto Rican bonds have sued the bankrupt U.S. territory’s financial oversight board, saying it should be forced to approve a $9 billion debt restructuring deal at the island’s power utility, PREPA. The lawsuit was filed late on Monday by Assured Guaranty Corp and MBIA Inc’s National Public Finance Guarantee, in federal court in San Juan. It is the latest wrangle over a debt workout many had considered a done deal as Puerto Rico battles a crisis marked by $70 billion in debt and a 45 percent poverty rate.
Assured and National, which insure a combined $2.3 billion of PREPA bonds, want a judge to rule the PREPA deal does not need the approval of a financial oversight board created under last year’s federal Puerto Rico rescue law, dubbed PROMESA.
PREPA is not part of Puerto Rico’s bankruptcy, and the deal was negotiated largely before PROMESA was passed. “In spite of Congress’s clear intent to preserve the consensual PREPA restructuring, the oversight board has arbitrarily failed to issue the ministerial certification required,” said the 30-page complaint.
A spokesman for the board, which is in charge of managing the island’s finances, did not respond to a request for comment.
Its delay in approving the deal, finalized in April, has irked creditors and sparked debate among lawmakers. U.S. Representative Rob Bishop told the board in a June 15 letter the delay was “troubling” and “outside the scope” of PROMESA.
House Democrats Nydia Velazquez and Raul Grijalva disagreed, saying on June 16 the board had “clear authority” to assess the deal, and should reject it because it could increase electricity costs.
While the board need not determine whether the deal fits guidelines for agreements forged under PROMESA, it still must decide whether to authorize the issuance of new debt, which could give the board an effective veto if it feels the deal could hurt Puerto Rico’s economy.
Under the agreement, which has been through multiple iterations since restructuring talks began nearly three years ago, PREPA creditors would accept 15 percent repayment cuts in exchange for new debt backed by a charge on customer bills. Insurers would pay a surety to shore up the new debt, and accept an additional $300 million in principal deferrals.
National insures some $3.6 billion of total Puerto Rico bonds, while Assured wraps another $4.9 billion.
Reporting by Nick Brown in New York; Editing by Matthew Lewis